UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 2011
Commission File Number 1-34073
Huntington Bancshares Incorporated
|
|
|
Maryland
|
|
31-0724920
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
41 South High Street, Columbus, Ohio 43287
Registrants telephone number
(614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2)
has been subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer
þ
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
þ
No
There were 863,323,099 shares of Registrants common stock ($0.01 par value) outstanding on June
30, 2011.
HUNTINGTON BANCSHARES INCORPORATED
INDEX
2
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used
throughout the document:
|
|
|
2010 Form 10-K
|
|
Annual Report on Form 10-K for the year ended December 31, 2010
|
ABL
|
|
Asset Based Lending
|
ACL
|
|
Allowance for Credit Losses
|
AFCRE
|
|
Automobile Finance and Commercial Real Estate
|
ALCO
|
|
Asset & Liability Management Committee
|
ALLL
|
|
Allowance for Loan and Lease Losses
|
ARM
|
|
Adjustable Rate Mortgage
|
ARRA
|
|
American Recovery and Reinvestment Act of 2009
|
ASC
|
|
Accounting Standards Codification
|
ATM
|
|
Automated Teller Machine
|
AULC
|
|
Allowance for Unfunded Loan Commitments
|
AVM
|
|
Automated Valuation Methodology
|
C&I
|
|
Commercial and Industrial
|
CDARS
|
|
Certificate of Deposit Account Registry Service
|
CDO
|
|
Collateralized Debt Obligations
|
CDs
|
|
Certificates of Deposit
|
CFPB
|
|
Bureau of Consumer Financial Protection
|
CMO
|
|
Collateralized Mortgage Obligations
|
CPP
|
|
Capital Purchase Program
|
CRE
|
|
Commercial Real Estate
|
DDA
|
|
Demand Deposit Account
|
DIF
|
|
Deposit Insurance Fund
|
Dodd-Frank Act
|
|
Dodd-Frank Wall Street Reform and Consumer Protection Act
|
EESA
|
|
Emergency Economic Stabilization Act of 2008
|
EPS
|
|
Earnings Per Share
|
ERISA
|
|
Employee Retirement Income Security Act
|
EVE
|
|
Economic Value of Equity
|
FASB
|
|
Financial Accounting Standards Board
|
FDIC
|
|
Federal Deposit Insurance Corporation
|
FDICIA
|
|
Federal Deposit Insurance Corporation Improvement Act of 1991
|
FFIEC
|
|
Federal Financial Institutions Examination Council
|
FHA
|
|
Federal Housing Administration
|
FHFA
|
|
Federal Housing Finance Agency
|
FHLB
|
|
Federal Home Loan Bank
|
FHLMC
|
|
Federal Home Loan Mortgage Corporation
|
FICA
|
|
Federal Insurance Contributions Act
|
FICO
|
|
Fair Isaac Corporation
|
FNMA
|
|
Federal National Mortgage Association
|
Franklin
|
|
Franklin Credit Management Corporation
|
FSP
|
|
Financial Stability Plan
|
FTE
|
|
Fully-Taxable Equivalent
|
FTP
|
|
Funds Transfer Pricing
|
GAAP
|
|
Generally Accepted Accounting Principles in the United States of America
|
3
|
|
|
GSIFI
|
|
Globally Systemically Important Financial Institution
|
GSE
|
|
Government Sponsored Enterprise
|
HASP
|
|
Homeowner Affordability and Stability Plan
|
HCER Act
|
|
Health Care and Education Reconciliation Act of 2010
|
IPO
|
|
Initial Public Offering
|
IRS
|
|
Internal Revenue Service
|
ISE
|
|
Interest Sensitive Earnings
|
LIBOR
|
|
London Interbank Offered Rate
|
LTV
|
|
Loan to Value
|
MD&A
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
MRC
|
|
Market Risk Committee
|
MSR
|
|
Mortgage Servicing Rights
|
NALs
|
|
Nonaccrual Loans
|
NAV
|
|
Net Asset Value
|
NCO
|
|
Net Charge-off
|
NPAs
|
|
Nonperforming Assets
|
NSF / OD
|
|
Nonsufficient Funds and Overdraft
|
OCC
|
|
Office of the Comptroller of the Currency
|
OCI
|
|
Other Comprehensive Income (Loss)
|
OCR
|
|
Optimal Customer Relationship
|
OLEM
|
|
Other Loans Especially Mentioned
|
OREO
|
|
Other Real Estate Owned
|
OTTI
|
|
Other-Than-Temporary Impairment
|
Plan
|
|
Huntington Bancshares Retirement Plan
|
Reg E
|
|
Regulation E, of the Electronic Fund Transfer Act
|
REIT
|
|
Real Estate Investment Trust
|
SAD
|
|
Special Assets Division
|
SBA
|
|
Small Business Administration
|
SEC
|
|
Securities and Exchange Commission
|
SERP
|
|
Supplemental Executive Retirement Plan
|
SIFIs
|
|
Systemically Important Financial Institutions
|
Sky Financial
|
|
Sky Financial Group, Inc.
|
SRIP
|
|
Supplemental Retirement Income Plan
|
Sky Trust
|
|
Sky Bank and Sky Trust, National Association
|
TAGP
|
|
Transaction Account Guarantee Program
|
TARP
|
|
Troubled Asset Relief Program
|
TARP Capital
|
|
Series B Preferred Stock
|
TCE
|
|
Tangible Common Equity
|
TDR
|
|
Troubled Debt Restructured Loan
|
TLGP
|
|
Temporary Liquidity Guarantee Program
|
Treasury
|
|
U.S. Department of the Treasury
|
UCS
|
|
Uniform Classification System
|
Unizan
|
|
Unizan Financial Corp.
|
UPB
|
|
Unpaid Principal Balance
|
USDA
|
|
U.S. Department of Agriculture
|
VA
|
|
U.S. Department of Veteran Affairs
|
VIE
|
|
Variable Interest Entity
|
WGH
|
|
Wealth Advisors, Government Finance, and Home Lending
|
4
PART I. FINANCIAL INFORMATION
When we refer to we, our, and us in this report, we mean Huntington Bancshares
Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to
the parent company, Huntington Bancshares Incorporated. When we refer to the Bank in this
report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.
|
|
|
Item 2:
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
INTRODUCTION
We are a multi-state diversified regional bank holding company organized under Maryland law in
1966 and headquartered in Columbus, Ohio. Through the Bank, we have 145 years of servicing the
financial needs of our customers. Through our subsidiaries, we provide full-service commercial and
consumer banking services, mortgage banking services, automobile financing, equipment leasing,
investment management, trust services, brokerage services, customized insurance service programs,
and other financial products and services. Our over 600 banking offices are located in Indiana,
Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Selected financial services and other
activities are also conducted in various other states. International banking services are
available through the headquarters office in Columbus, Ohio and a limited purpose office located in
the Cayman Islands and another limited purpose office located in Hong Kong. Our foreign banking
activities, in total or with any individual country, are not significant.
This MD&A provides information we believe necessary for understanding our financial condition,
changes in financial condition, results of operations, and cash flows. The MD&A included in our
2010 Form 10-K should be read in conjunction with this MD&A as this discussion provides only
material updates to the 2010 Form 10-K. This MD&A should also be read in conjunction with the
financial statements, notes and other information contained in this report.
Our discussion is divided into key segments:
|
|
|
Executive Overview
- Provides a summary of our current financial performance, and
business overview, including our thoughts on the impact of the economy, legislative and
regulatory initiatives, and recent industry developments. This section also provides our
outlook regarding our expectations for the remainder of 2011.
|
|
|
|
Discussion of Results of Operations
- Reviews financial performance from a consolidated
Company perspective. It also includes a Significant Items section that summarizes key
issues helpful for understanding performance trends. Key consolidated average balance sheet
and income statement trends are also discussed in this section.
|
|
|
|
Risk Management and Capital
- Discusses credit, market, liquidity, operational, and
compliance risks, including how these are managed, as well as performance trends. It also
includes a discussion of liquidity policies, how we obtain funding, and related
performance. In addition, there is a discussion of guarantees and / or commitments made for
items such as standby letters of credit and commitments to sell loans, and a discussion
that reviews the adequacy of capital, including regulatory capital requirements.
|
|
|
|
Business Segment Discussion
- Provides an overview of financial performance for each of
our major business segments and provides additional discussion of trends underlying
consolidated financial performance.
|
|
|
|
Additional Disclosures
- Provides comments on important matters including
forward-looking statements, critical accounting policies and use of significant estimates,
recent accounting pronouncements and developments, and acquisitions.
|
A reading of each section is important to understand fully the nature of our financial
performance and prospects.
5
EXECUTIVE OVERVIEW
Summary of 2011 Second Quarter Results
For the quarter, we reported net income of $145.9 million, or $0.16 per common share, compared
with $126.4 million, or $0.14 per common share, in the prior quarter (
see Table 1
).
Fully-taxable equivalent net interest income was $407.2 million for the quarter, down $1.1
million, or less than 1%, from the prior quarter. The decline primarily reflected a 1% (3%
annualized) decrease in average earning assets and a 2 basis point decline in the fully-taxable
equivalent net interest margin to 3.40% from 3.42%.
The provision for credit losses in the 2011 second quarter was $35.8 million, down $13.6
million, or 28% from the prior quarter. The decline in provision expense reflected a combination
of lower NCOs and the reduction of Criticized loans throughout the entire loan and lease portfolio.
The reduction in Criticized loans reflected the resolution of problem credits for which reserves
had previously been established. The current quarters provision for credit losses was $61.7
million less than total NCOs.
Total noninterest income increased $18.8 million, or 8%, from the prior quarter. This
reflected an increase in other income due to higher market related gains and capital markets
income, service charges on deposit accounts due to higher NSF / OD fees, electronic banking
reflecting higher activity levels, and bank owned life insurance income.
Total noninterest expense declined $2.3 million, or 1%, from the prior quarter. This
reflected a decrease in other expense due to the prior quarters additions to litigation reserves.
Partially offsetting this decline were increases in professional services for costs supporting
regulatory and litigation efforts, deposit and other insurance, outside data processing and other
services due to higher appraisal costs and system upgrade expenses, and marketing expense
reflecting higher advertising costs.
Credit quality performance in the 2011 second quarter reflected continued improvement in the
overall loan portfolio. NCOs and nonaccrual loans declined 41% and 3%, respectively, from the
prior quarter. The NAL, NPA and Criticized asset ratios all showed continued improvement in the
quarter. The ALLL and ACL coverage ratios fell slightly to 2.74% and 2.84%, from 2.96% and 3.07%,
respectively, but remain sufficient and appropriate. NPAs fell by 5% in the quarter.
On July 21, 2011, we announced that our board of directors had declared a quarterly common
stock cash dividend of $0.04 per common share, up from the prior quarterly dividend of $0.01. The
dividend is payable on October 3, 2011, to shareholders of record on September 19, 2011. We are
very pleased that our financial strength and performance have improved to the point that enabled us
to take this action.
Business Overview
General
Our general business objectives are: (1) grow revenue and profitability, (2) improve
cross-sell and share-of-wallet across all business segments, (3) grow key fee businesses (existing
and new), (4) improve credit quality, including lower NCOs and NALs, (5) reduce noncore CRE
exposure, and (6) continue to improve our overall management of risk.
Throughout last year, and continuing into this year, we are taking advantage of what we view
as an opportunity to make significant investments in strategic initiatives to position us for more
profitable and sustainable long-term growth. This includes implementing our Fair Play banking
philosophy value proposition for our consumer customers, increasing share-of-wallet, investing in
expanding existing business, and launching new businesses.
Our emphasis on cross-sell, coupled with consumer customers increasingly being attracted by
the benefits offered through our Fair Play banking philosophy, with programs such as 24-Hour
Grace
®
on overdrafts and more recently the launch of Asterisk-Free Checking and Huntington Plus
Checking, is having a positive effect. The percentage of consumer households with over four
products at the end of the 2011 second quarter was 71.3%, up from 69.4% at the end of last year.
And for the first half of this year, consumer checking account households grew at a 9.9% annualized
rate, up from 6.8% for full year 2010.
6
Economy
Borrower and consumer confidence and the sustainability of the slow economic recovery remain
major factors impacting growth opportunities for the remainder of 2011. Unfortunately, during the
first half of 2011, a number of issues have emerged that could negatively impact the recovery.
These additional risks include the U.S. debt ceiling discussions, the budget issues in local
governments, and the continued economic and political instability in Europe as well as the
political instability in the Middle East with its ramifications on the cost of oil translating to
higher gas prices. In addition, above average office vacancy rates in large
metropolitan areas indicate the possibility for some continued softness in commercial real
estate in 2011. Within our footprint states of Indiana, Kentucky, Michigan, Ohio, Pennsylvania,
and West Virginia, real estate has generally remained weak, in line with national trends,
reflecting capacity overhang created by weakness in economic growth prior to the recovery.
However, there are some signs that our footprint states have been experiencing cyclical recovery in
line with, and in certain instances stronger than, the national average. They include:
|
|
|
From January 2009 through May 2011, an increase in total payroll for all footprint
states, with all but West Virginia (one of our smaller regions) exceeding the national
average.
|
|
|
|
Manufacturing that is expected to continue to improve, although near-term weakness is
likely as a result of the negative impact of high energy prices on demand and supply
bottlenecks created by the crisis in Japan.
|
|
|
|
From May 2010 to May 2011, unemployment rates declined for all of our footprint states.
|
|
|
|
Since its low in January 2009, exports have grown faster than the U.S. average in all
footprint states except Kentucky.
|
|
|
|
State and local fiscal conditions will likely remain tight in the next year, although
rising tax revenue should gradually reduce strains.
|
For now, we continue to believe the economy is likely to remain fragile and not show much
growth throughout the remainder of 2011.
Legislative and Regulatory
Regulatory reforms continue to be adopted which impose additional restrictions on current
business practices. Recent actions affecting us included an amendment to Reg E relating to certain
overdraft fees for consumer deposit accounts and the rules and regulations that have been issued
pursuant to the Dodd-Frank Act.
Durbin Amendment
The Durbin Amendment to the Dodd-Frank Act instructed the Federal Reserve to
establish the rate merchants pay banks for electronic clearing of debit card transactions (i.e.,
the interchange rate). The Federal Reserve recently issued its final rule establishing standards
for debit card interchange fees and prohibiting network exclusivity arrangements and routing
restrictions. The final rule establishes standards for assessing whether debit card interchange
fees received by debit card issuers are reasonable and proportional to the costs incurred by
issuers for electronic debit transactions. Under the final rule, the maximum permissible
interchange fee that an issuer may receive for an electronic debit transaction will be the sum of
21 cents per transaction, 1 cent fraud prevention adjustment, and 5 basis points multiplied by the
value of the transaction. This provision regarding debit card interchange fees will become
effective on October 1, 2011. Based on the final rule, we expect our 2011 fourth quarter
electronic banking income to decline from the 2011 second quarter level by approximately 50%.
Recent Industry Developments
Foreclosure Documentation
On June 30, 2011, the OCC issued OCC Bulletin 2011-29 clarifying their
expectations for the oversight and management of mortgage foreclosure activities by national banks
and directing national banks to perform a self-assessment no later than September 30, 2011. We
believe that, with the self-assessments Huntington has performed and is currently performing, we
are in compliance with the OCC expectation for self-assessment.
Mortgage Servicing Rights
MSR fair values are estimated based on residential mortgage servicing
revenue in excess of estimated market costs to service the underlying loans. Historically, the
estimated market cost to service has been stable. Due to changes in the regulatory environment
related to loan servicing and foreclosure activities, costs to service may potentially increase,
however the potential impact on the market costs to service remains uncertain. Certain large
residential mortgage loan servicers entered into consent orders with banking regulators in April
2011, which require the banks to remedy deficiencies and unsafe or unsound practices and to enhance
residential mortgage servicing and foreclosure processes. It is unclear what impact this may
ultimately have on market costs to service. At June 30, 2011, we estimated a 25% increase to our
loan servicing market cost assumption would result in a fair value impairment charge of
approximately $8.3 million.
Representation and Warranty Reserve
We primarily conduct our loan sale and securitization
activity with FNMA and FHLMC. In connection with these and other sale and securitization
transactions, we make representations and warranties that the loans meet certain criteria, such as
collateral type and underwriting standards. We may be required to repurchase individual loans and
/ or indemnify these organizations against losses due to material breaches of these representations
and warranties. At June 30, 2011, we had a reserve for such losses of $24.5 million, which is
included in accrued expenses and other liabilities.
7
Expectations
The lack of prospects for meaningful economic improvement, higher interest rates, and wider
spreads between short-term and long-term interest rates over the remainder of this year is a
challenge. Further, borrower and consumer confidence remain fragile. And while we now have
clarity on the amount and timing of the pending reduction in debit card interchange fees, this
nevertheless represents a reduction in fee income. All of these combined represent meaningful
revenue growth headwinds.
Net income is expected to grow from the current quarter level throughout the rest of the year,
primarily reflecting modest revenue growth and disciplined expense control.
We believe the momentum we are seeing in loan and low cost deposit growth will continue.
This, coupled with a stable net interest margin, is expected to contribute to modest growth in net
interest income. Our C&I portfolio is expected to continue to show meaningful growth. We believe
period-end balances in our C&I and automobile loan portfolios position us for continued growth in
average balances for these portfolios as we head into the third quarter.
We anticipate our total core deposits will increase, reflecting continued growth in consumer
households and business relationships. Further, we expect the shift toward lower-cost
noninterest-bearing and interest-bearing demand deposit accounts will continue.
Noninterest income is expected to grow modestly in the 2011 second half. The primary driver
is expected to be service charge income as the benefits from our Fair Play banking philosophy
continue to gain momentum commensurate with consumer household growth and increased product
penetration. Mortgage banking income will likely show only modest, if any, growth throughout the
second half of the year. As described above, electronic banking income in the fourth quarter is
expected to decline by approximately 50% as the new interchange fee structure will be implemented
October 1, 2011. We also expect to see continued growth in the earnings contribution from other
key fee income activities including capital markets, treasury management services, and brokerage,
reflecting the impact of our cross-sell and product penetration initiatives throughout the company,
as well as the positive impact from strategic initiatives.
In addition, expense levels are expected to remain relatively stable.
Nonaccrual loans and net charge-offs are expected to continue to decline throughout the year.
We anticipate the effective tax rate for the remainder of the year to approximate 35% of
income before income taxes less approximately $40.0 million of permanent tax differences over the
remainder of 2011 primarily related to tax-exempt income, tax-advantaged investments, and general
business credits.
8
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. It
also includes a Significant Items section that summarizes key issues important for a complete
understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and
Statement of Income trends are discussed. All earnings per share data are reported on a diluted
basis. For additional insight on financial performance, please read this section in conjunction
with the Business Segment Discussion.
9
Table 1 Selected Quarterly Income Statement Data (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands, except per share amounts)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Interest income
|
|
$
|
492,137
|
|
|
$
|
501,877
|
|
|
$
|
528,291
|
|
|
$
|
534,669
|
|
|
$
|
535,653
|
|
Interest expense
|
|
|
88,800
|
|
|
|
97,547
|
|
|
|
112,997
|
|
|
|
124,707
|
|
|
|
135,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
403,337
|
|
|
|
404,330
|
|
|
|
415,294
|
|
|
|
409,962
|
|
|
|
399,656
|
|
Provision for credit losses
|
|
|
35,797
|
|
|
|
49,385
|
|
|
|
86,973
|
|
|
|
119,160
|
|
|
|
193,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
367,540
|
|
|
|
354,945
|
|
|
|
328,321
|
|
|
|
290,802
|
|
|
|
206,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
60,675
|
|
|
|
54,324
|
|
|
|
55,810
|
|
|
|
65,932
|
|
|
|
75,934
|
|
Mortgage banking income
|
|
|
23,835
|
|
|
|
22,684
|
|
|
|
53,169
|
|
|
|
52,045
|
|
|
|
45,530
|
|
Trust services
|
|
|
30,392
|
|
|
|
30,742
|
|
|
|
29,394
|
|
|
|
26,997
|
|
|
|
28,399
|
|
Electronic banking
|
|
|
31,728
|
|
|
|
28,786
|
|
|
|
28,900
|
|
|
|
28,090
|
|
|
|
28,107
|
|
Insurance income
|
|
|
16,399
|
|
|
|
17,945
|
|
|
|
19,678
|
|
|
|
19,801
|
|
|
|
18,074
|
|
Brokerage income
|
|
|
20,819
|
|
|
|
20,511
|
|
|
|
16,953
|
|
|
|
16,575
|
|
|
|
18,425
|
|
Bank owned life insurance income
|
|
|
17,602
|
|
|
|
14,819
|
|
|
|
16,113
|
|
|
|
14,091
|
|
|
|
14,392
|
|
Automobile operating lease income
|
|
|
7,307
|
|
|
|
8,847
|
|
|
|
10,463
|
|
|
|
11,356
|
|
|
|
11,842
|
|
Securities gains (losses)
|
|
|
1,507
|
|
|
|
40
|
|
|
|
(103
|
)
|
|
|
(296
|
)
|
|
|
156
|
|
Other income
|
|
|
45,503
|
|
|
|
38,247
|
|
|
|
33,843
|
|
|
|
32,552
|
|
|
|
28,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
255,767
|
|
|
|
236,945
|
|
|
|
264,220
|
|
|
|
267,143
|
|
|
|
269,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
218,570
|
|
|
|
219,028
|
|
|
|
212,184
|
|
|
|
208,272
|
|
|
|
194,875
|
|
Outside data processing and other services
|
|
|
43,889
|
|
|
|
40,282
|
|
|
|
40,943
|
|
|
|
38,553
|
|
|
|
40,670
|
|
Net occupancy
|
|
|
26,885
|
|
|
|
28,436
|
|
|
|
26,670
|
|
|
|
26,718
|
|
|
|
25,388
|
|
Deposit and other insurance expense
|
|
|
23,823
|
|
|
|
17,896
|
|
|
|
23,320
|
|
|
|
23,406
|
|
|
|
26,067
|
|
Professional services
|
|
|
20,080
|
|
|
|
13,465
|
|
|
|
21,021
|
|
|
|
20,672
|
|
|
|
24,388
|
|
Equipment
|
|
|
21,921
|
|
|
|
22,477
|
|
|
|
22,060
|
|
|
|
21,651
|
|
|
|
21,585
|
|
Marketing
|
|
|
20,102
|
|
|
|
16,895
|
|
|
|
16,168
|
|
|
|
20,921
|
|
|
|
17,682
|
|
Amortization of intangibles
|
|
|
13,386
|
|
|
|
13,370
|
|
|
|
15,046
|
|
|
|
15,145
|
|
|
|
15,141
|
|
OREO and foreclosure expense
|
|
|
4,398
|
|
|
|
3,931
|
|
|
|
10,502
|
|
|
|
12,047
|
|
|
|
4,970
|
|
Automobile operating lease expense
|
|
|
5,434
|
|
|
|
6,836
|
|
|
|
8,142
|
|
|
|
9,159
|
|
|
|
9,667
|
|
Other expense
|
|
|
29,921
|
|
|
|
48,083
|
|
|
|
38,537
|
|
|
|
30,765
|
|
|
|
33,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
428,409
|
|
|
|
430,699
|
|
|
|
434,593
|
|
|
|
427,309
|
|
|
|
413,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
194,898
|
|
|
|
161,191
|
|
|
|
157,948
|
|
|
|
130,636
|
|
|
|
62,083
|
|
Provision (benefit) for income taxes
|
|
|
48,980
|
|
|
|
34,745
|
|
|
|
35,048
|
|
|
|
29,690
|
|
|
|
13,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
145,918
|
|
|
$
|
126,446
|
|
|
$
|
122,900
|
|
|
$
|
100,946
|
|
|
$
|
48,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred shares
|
|
|
7,704
|
|
|
|
7,703
|
|
|
|
83,754
|
|
|
|
29,495
|
|
|
|
29,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shares
|
|
$
|
138,214
|
|
|
$
|
118,743
|
|
|
$
|
39,146
|
|
|
$
|
71,451
|
|
|
$
|
19,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic
|
|
|
863,358
|
|
|
|
863,359
|
|
|
|
757,924
|
|
|
|
716,911
|
|
|
|
716,580
|
|
Average common shares diluted (2)
|
|
|
867,469
|
|
|
|
867,237
|
|
|
|
760,582
|
|
|
|
719,567
|
|
|
|
719,387
|
|
Net income per common share basic
|
|
$
|
0.16
|
|
|
$
|
0.14
|
|
|
$
|
0.05
|
|
|
$
|
0.10
|
|
|
$
|
0.03
|
|
Net income per common share diluted
|
|
|
0.16
|
|
|
|
0.14
|
|
|
|
0.05
|
|
|
|
0.10
|
|
|
|
0.03
|
|
Cash dividends declared per common share
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
Return on average total assets
|
|
|
1.11
|
%
|
|
|
0.96
|
%
|
|
|
0.90
|
%
|
|
|
0.76
|
%
|
|
|
0.38
|
%
|
Return on average common shareholders equity
|
|
|
11.6
|
|
|
|
10.3
|
|
|
|
3.8
|
|
|
|
7.4
|
|
|
|
2.1
|
|
Return on average tangible common shareholders equity (3)
|
|
|
13.3
|
|
|
|
12.7
|
|
|
|
5.6
|
|
|
|
10.0
|
|
|
|
3.8
|
|
Net interest margin (4)
|
|
|
3.40
|
|
|
|
3.42
|
|
|
|
3.37
|
|
|
|
3.45
|
|
|
|
3.46
|
|
Efficiency ratio (5)
|
|
|
62.7
|
|
|
|
64.7
|
|
|
|
61.4
|
|
|
|
60.6
|
|
|
|
59.4
|
|
Effective tax rate
|
|
|
25.1
|
|
|
|
21.6
|
|
|
|
22.2
|
|
|
|
22.7
|
|
|
|
21.5
|
|
|
Revenue FTE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
403,337
|
|
|
$
|
404,330
|
|
|
$
|
415,294
|
|
|
$
|
409,962
|
|
|
$
|
399,656
|
|
FTE adjustment
|
|
|
3,834
|
|
|
|
3,945
|
|
|
|
3,708
|
|
|
|
2,631
|
|
|
|
2,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (4)
|
|
|
407,171
|
|
|
|
408,275
|
|
|
|
419,002
|
|
|
|
412,593
|
|
|
|
402,146
|
|
Noninterest income
|
|
|
255,767
|
|
|
|
236,945
|
|
|
|
264,220
|
|
|
|
267,143
|
|
|
|
269,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (4)
|
|
$
|
662,938
|
|
|
$
|
645,220
|
|
|
$
|
683,222
|
|
|
$
|
679,736
|
|
|
$
|
671,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
(1)
|
|
Comparisons for presented periods are impacted by a number of factors. Refer
to Significant Items.
|
|
(2)
|
|
For periods presented prior to their repurchase, the impact of the convertible
preferred stock issued in 2008 and the warrants issued to the U.S. Department of the Treasury in
2008 related to Huntingtons participation in the voluntary Capital Purchase Program was
excluded from the diluted share calculation because the result was more than basic earnings per
common share (anti-dilutive) for those periods. The convertible preferred stock and warrants were
repurchased in December 2010 and January 2011, respectively.
|
|
(3)
|
|
Net income excluding expense for amortization of intangibles for the period divided
by average tangible common shareholders equity. Average tangible common shareholders equity
equals average total common shareholders equity less average intangible assets and goodwill.
Expense for amortization of intangibles and average intangible assets are net of deferred tax
liability, and calculated assuming a 35% tax rate.
|
|
(4)
|
|
On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(5)
|
|
Noninterest expense less amortization of intangibles and goodwill impairment
divided by the sum of FTE net interest income and noninterest income excluding securities gains
(losses).
|
11
Table 2 Selected Year to Date Income Statement Data(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
(dollar amounts in thousands, except per share amounts)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Interest income
|
|
$
|
994,014
|
|
|
$
|
1,082,432
|
|
|
$
|
(88,418
|
)
|
|
|
(8)
|
%
|
Interest expense
|
|
|
186,347
|
|
|
|
288,883
|
|
|
|
(102,536
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
807,667
|
|
|
|
793,549
|
|
|
|
14,118
|
|
|
|
2
|
|
Provision for credit losses
|
|
|
85,182
|
|
|
|
428,414
|
|
|
|
(343,232
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
722,485
|
|
|
|
365,135
|
|
|
|
357,350
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
114,999
|
|
|
|
145,273
|
|
|
|
(30,274
|
)
|
|
|
(21
|
)
|
Mortgage banking income
|
|
|
46,519
|
|
|
|
70,568
|
|
|
|
(24,049
|
)
|
|
|
(34
|
)
|
Trust services
|
|
|
61,134
|
|
|
|
56,164
|
|
|
|
4,970
|
|
|
|
9
|
|
Electronic banking
|
|
|
60,514
|
|
|
|
53,244
|
|
|
|
7,270
|
|
|
|
14
|
|
Insurance income
|
|
|
34,344
|
|
|
|
36,934
|
|
|
|
(2,590
|
)
|
|
|
(7
|
)
|
Brokerage income
|
|
|
41,330
|
|
|
|
35,327
|
|
|
|
6,003
|
|
|
|
17
|
|
Bank owned life insurance income
|
|
|
32,421
|
|
|
|
30,862
|
|
|
|
1,559
|
|
|
|
5
|
|
Automobile operating lease income
|
|
|
16,154
|
|
|
|
24,145
|
|
|
|
(7,991
|
)
|
|
|
(33
|
)
|
Securities gains
|
|
|
1,547
|
|
|
|
125
|
|
|
|
1,422
|
|
|
|
1,138
|
|
Other income
|
|
|
83,750
|
|
|
|
57,853
|
|
|
|
25,897
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
492,712
|
|
|
|
510,495
|
|
|
|
(17,783
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
437,598
|
|
|
|
378,517
|
|
|
|
59,081
|
|
|
|
16
|
|
Outside data processing and other services
|
|
|
84,171
|
|
|
|
79,752
|
|
|
|
4,419
|
|
|
|
6
|
|
Net occupancy
|
|
|
55,321
|
|
|
|
54,474
|
|
|
|
847
|
|
|
|
2
|
|
Deposit and other insurance expense
|
|
|
41,719
|
|
|
|
50,822
|
|
|
|
(9,103
|
)
|
|
|
(18
|
)
|
Professional services
|
|
|
33,545
|
|
|
|
47,085
|
|
|
|
(13,540
|
)
|
|
|
(29
|
)
|
Equipment
|
|
|
44,398
|
|
|
|
42,209
|
|
|
|
2,189
|
|
|
|
5
|
|
Marketing
|
|
|
36,997
|
|
|
|
28,835
|
|
|
|
8,162
|
|
|
|
28
|
|
Amortization of intangibles
|
|
|
26,756
|
|
|
|
30,287
|
|
|
|
(3,531
|
)
|
|
|
(12
|
)
|
OREO and foreclosure expense
|
|
|
8,329
|
|
|
|
16,500
|
|
|
|
(8,171
|
)
|
|
|
(50
|
)
|
Automobile operating lease expense
|
|
|
12,270
|
|
|
|
19,733
|
|
|
|
(7,463
|
)
|
|
|
(38
|
)
|
Other expense
|
|
|
78,004
|
|
|
|
63,689
|
|
|
|
14,315
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
859,108
|
|
|
|
811,903
|
|
|
|
47,205
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
356,089
|
|
|
|
63,727
|
|
|
|
292,362
|
|
|
|
459
|
|
Provision (benefit) for income taxes
|
|
|
83,725
|
|
|
|
(24,774
|
)
|
|
|
108,499
|
|
|
|
N.R.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
272,364
|
|
|
$
|
88,501
|
|
|
$
|
183,863
|
|
|
|
208
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred shares
|
|
|
15,407
|
|
|
|
58,783
|
|
|
|
(43,376
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shares
|
|
$
|
256,957
|
|
|
$
|
29,718
|
|
|
$
|
227,239
|
|
|
|
765
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic
|
|
|
863,358
|
|
|
|
716,450
|
|
|
|
146,908
|
|
|
|
21
|
%
|
Average common shares diluted (2)
|
|
|
867,353
|
|
|
|
718,990
|
|
|
|
148,363
|
|
|
|
21
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
0.30
|
|
|
$
|
0.04
|
|
|
$
|
0.26
|
|
|
|
650
|
%
|
Net income per common share diluted
|
|
|
0.30
|
|
|
|
0.04
|
|
|
|
0.26
|
|
|
|
650
|
|
Cash dividends declared
|
|
|
0.02
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
Return on average total assets
|
|
|
1.03
|
%
|
|
|
0.35
|
%
|
|
|
0.68
|
%
|
|
|
194
|
%
|
Return on average common shareholders equity
|
|
|
11.0
|
|
|
|
1.6
|
|
|
|
9.4
|
|
|
|
588
|
|
Return on average tangible common shareholders equity (3)
|
|
|
13.4
|
|
|
|
3.2
|
|
|
|
10.2
|
|
|
|
319
|
|
Net interest margin (4)
|
|
|
3.41
|
|
|
|
3.47
|
|
|
|
(0.06
|
)
|
|
|
(2
|
)
|
Efficiency ratio (5)
|
|
|
63.7
|
|
|
|
59.7
|
|
|
|
4.0
|
|
|
|
7
|
|
Effective tax rate (benefit)
|
|
|
23.5
|
|
|
|
(38.9
|
)
|
|
|
62.4
|
|
|
|
N.R.
|
|
|
Revenue FTE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
807,667
|
|
|
$
|
793,549
|
|
|
$
|
14,118
|
|
|
|
2
|
%
|
FTE adjustment
|
|
|
7,779
|
|
|
|
4,738
|
|
|
|
3,041
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (4)
|
|
|
815,446
|
|
|
|
798,287
|
|
|
|
17,159
|
|
|
|
2
|
|
Noninterest income
|
|
|
492,712
|
|
|
|
510,495
|
|
|
|
(17,783
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (4)
|
|
$
|
1,308,158
|
|
|
$
|
1,308,782
|
|
|
$
|
(624
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.R. Not relevant, as denominator of calculation is a loss in prior period compared with income in current period.
|
|
|
(1)
|
|
Comparisons for presented periods are impacted by a number of factors. Refer
to Significant Items.
|
12
|
|
|
(2)
|
|
For all periods presented, the impact of the convertible preferred stock issued in
2008 and the warrants issued to the U.S. Department of the Treasury in 2008 related to Huntingtons
participation in the voluntary Capital Purchase Program was excluded from the diluted share
calculation because the result was more than basic earnings per common share (anti-dilutive) for
the periods. The convertible preferred stock and warrants were repurchased in December 2010 and
January 2011, respectively.
|
|
(3)
|
|
Net income excluding expense for amortization of intangibles for the period divided
by average tangible common shareholders equity. Average tangible common shareholders equity
equals average total common shareholders equity less average intangible assets and goodwill.
Expense for amortization of intangibles and average intangible assets are net of deferred tax
liability, and calculated assuming a 35% tax rate.
|
|
(4)
|
|
On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(5)
|
|
Noninterest expense less amortization of intangibles and goodwill impairment
divided by the sum of FTE net interest income and noninterest income excluding securities gains
(losses).
|
Significant Items
Definition of Significant Items
From time-to-time, revenue, expenses, or taxes, are impacted by items judged by us to be
outside of ordinary banking activities and / or by items that, while they may be associated with
ordinary banking activities, are so unusually large that their outsized impact is believed by us at
that time to be infrequent or short-term in nature. We refer to such items as Significant Items.
Most often, these Significant Items result from factors originating outside the Company; e.g.,
regulatory actions / assessments, windfall gains, changes in accounting principles, one-time tax
assessments / refunds, litigation actions, etc. In other cases, they may result from our decisions
associated with significant corporate actions out of the ordinary course of business; e.g., merger
/ restructuring charges, recapitalization actions, goodwill impairment, etc.
Even though certain revenue and expense items are naturally subject to more volatility than
others due to changes in market and economic environment conditions, as a general rule volatility
alone does not define a Significant Item. For example, changes in the provision for credit losses,
gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary
banking activities and are, therefore, typically excluded from consideration as a Significant Item.
We believe the disclosure of Significant Items provides a better understanding of our
performance and trends to ascertain which of such items, if any, to include or exclude from an
analysis of our performance; i.e., within the context of determining how that performance differed
from expectations, as well as how, if at all, to adjust estimates of future performance
accordingly. To this end, we adopted a practice of listing Significant Items in our external
disclosure documents (e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K).
Significant Items for any particular period are not intended to be a complete list of items
that may materially impact current or future period performance.
Significant Items Influencing Financial Performance Comparisons
Earnings comparisons were impacted by the Significant Items summarized below.
|
1.
|
|
Litigation Reserve.
During the 2011 first quarter, $17.0 million of additions to
litigation reserves were recorded as other noninterest expense. This resulted in a negative
impact of $0.01 per common share.
|
|
2.
|
|
Franklin Relationship.
Our relationship with Franklin was acquired in the Sky Financial
acquisition in 2007. Significant events relating to this relationship following the
acquisition, and the impacts of those events on our reported results were as follows:
|
|
|
|
On March 31, 2009, we restructured our relationship with Franklin. During the 2010
first quarter, a $38.2 million ($0.05 per common share) net tax benefit was recognized,
primarily reflecting the increase in the net deferred tax asset relating to the assets
acquired from the March 31, 2009 restructuring.
|
|
|
|
During the 2010 second quarter, the remaining portfolio of Franklin-related loans
($333.0 million of residential mortgages, and $64.7 million of home equity loans) was
transferred to loans held for sale. At the time of the transfer, the loans were marked
to the lower of cost or fair value, less costs to sell, of $323.4 million, resulting in
$75.5 million of charge-offs, and the provision for credit losses commensurately
increased $75.5 million ($0.07 per common share).
|
13
The following table reflects the earnings impact of the above-mentioned significant items for
periods affected by this Results of Operations discussion:
Table 3 Significant Items Influencing Earnings Performance Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2011
|
|
|
March 31, 2011
|
|
|
June 30, 2010
|
|
(dollar amounts in thousands, except per share amounts)
|
|
After-tax
|
|
|
EPS
|
|
|
After-tax
|
|
|
EPS
|
|
|
After-tax
|
|
|
EPS
|
|
Net income
|
|
$
|
145,918
|
|
|
|
|
|
|
$
|
126,446
|
|
|
|
|
|
|
$
|
48,764
|
|
|
|
|
|
Earnings per share, after-tax
|
|
|
|
|
|
$
|
0.16
|
|
|
|
|
|
|
$
|
0.14
|
|
|
|
|
|
|
$
|
0.03
|
|
Change from prior quarter $
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
0.09
|
|
|
|
|
|
|
|
0.02
|
|
Change from prior quarter %
|
|
|
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
180.0
|
%
|
|
|
|
|
|
|
200.0
|
%
|
|
|
|
|
|
|
|
|
Change from year-ago $
|
|
|
|
|
|
$
|
0.13
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
|
|
|
$
|
0.43
|
|
Change from year-ago %
|
|
|
|
|
|
|
433
|
%
|
|
|
|
|
|
|
1,300
|
%
|
|
|
|
|
|
|
(107.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items favorable (unfavorable) impact:
|
|
Earnings (1)
|
|
EPS
|
|
Earnings (1)
|
|
EPS
|
|
Earnings (1)
|
|
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin-related loans
transferred to held for sale
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(75,500
|
)
|
|
$
|
(0.07
|
)
|
Litigation reserves addition
|
|
|
|
|
|
|
|
|
|
|
(17,028
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Pretax unless otherwise noted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2011
|
|
|
June 30, 2010
|
|
(dollar amounts in thousands)
|
|
After-tax
|
|
|
EPS
|
|
|
After-tax
|
|
|
EPS
|
|
Net income
|
|
$
|
272,364
|
|
|
|
|
|
|
$
|
88,501
|
|
|
|
|
|
Earnings per share, after-tax
|
|
|
|
|
|
$
|
0.30
|
|
|
|
|
|
|
$
|
0.04
|
|
Change from a year-ago $
|
|
|
|
|
|
|
0.26
|
|
|
|
|
|
|
|
6.51
|
|
Change from a year-ago %
|
|
|
|
|
|
|
650
|
%
|
|
|
|
|
|
|
101
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items favorable (unfavorable) impact:
|
|
Earnings (1)
|
|
EPS
|
|
Earnings (1)
|
|
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin-related loans transferred to held for sale
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(75,500
|
)
|
|
$
|
(0.07
|
)
|
Net tax benefit recognized (2)
|
|
|
|
|
|
|
|
|
|
|
38,222
|
|
|
|
0.05
|
|
Litigation reserves addition
|
|
|
(17,028
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Pretax unless otherwise noted.
|
|
(2)
|
|
After-tax.
|
Pretax, Pre-provision Income Trends
One non-GAAP performance measurement that we believe is useful in analyzing our underlying
performance trends is pretax, pre-provision income. This is the level of pretax earnings adjusted
to exclude the impact of: (a) provision expense, (b) investment securities gains/losses, which are
excluded because securities market valuations may become particularly volatile in times of economic
stress, (c) amortization of intangibles expense, which is excluded because the return on tangible
common equity is a key measurement we use to gauge performance trends, and (d) certain other items
identified by us
(see Significant Items)
that we believe may distort our underlying performance
trends.
14
The following table reflects pretax, pre-provision income for each of the past five quarters:
Table 4 Pretax, Pre-provision Income (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
194,898
|
|
|
$
|
161,191
|
|
|
$
|
157,948
|
|
|
$
|
130,636
|
|
|
$
|
62,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Provision for credit losses
|
|
|
35,797
|
|
|
|
49,385
|
|
|
|
86,973
|
|
|
|
119,160
|
|
|
|
193,406
|
|
Less: Securities gains (losses)
|
|
|
1,507
|
|
|
|
40
|
|
|
|
(103
|
)
|
|
|
(296
|
)
|
|
|
156
|
|
Add: Amortization of intangibles
|
|
|
13,386
|
|
|
|
13,370
|
|
|
|
15,046
|
|
|
|
15,145
|
|
|
|
15,141
|
|
Less: Litigation reserves addition
|
|
|
|
|
|
|
(17,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax, pre-provision income
|
|
$
|
242,574
|
|
|
$
|
240,934
|
|
|
$
|
260,070
|
|
|
$
|
265,237
|
|
|
$
|
270,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in total pretax, pre-provision income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior quarter change amount
|
|
$
|
1,640
|
|
|
$
|
(19,136
|
)
|
|
$
|
(5,167
|
)
|
|
$
|
(5,237
|
)
|
|
$
|
18,645
|
|
Prior quarter change percent
|
|
|
1
|
%
|
|
|
(7
|
)%
|
|
|
(2
|
)%
|
|
|
(2
|
)%
|
|
|
7
|
%
|
|
|
|
(1)
|
|
Pretax, pre-provision income is a non-GAAP financial measure. Any ratio utilizing this financial measure is also non-GAAP. This financial measure has been included as it is
considered to be an important metric with which to analyze and evaluate our results of operations and financial strength. Other companies may calculate this financial measure
differently.
|
Pretax, pre-provision income was $242.6 million in the 2011 second quarter, up $1.6
million, or 1%, from the prior quarter. As discussed in the sections that follow, the increase
from the prior quarter primarily reflected higher revenue partially offset by higher noninterest
expense after consideration of the prior quarter Significant Item.
Net Interest Income / Average Balance Sheet
2011 Second Quarter versus 2010 Second Quarter
Fully-taxable equivalent net interest income increased $5.0 million, or 1%, from the year-ago
quarter. This reflected the benefit of a $1.4 billion, or 3%, increase in average earning assets
and a 6 basis points decline in the FTE net interest margin. The increase in average earning
assets reflected a combination of factors including:
|
|
|
$1.4 billion, or 4%, increase in average total loans and leases.
|
|
|
|
$0.3 billion, or 3%, increase in average total available-for-sale and other securities
and held-to-maturity securities.
|
The 6 basis points decline in the FTE net interest margin reflected a reduction in derivatives
income, lower loan and securities yields, partially offset by the positive impacts of increases in
low cost deposits and improved deposit pricing.
15
The following table details the change in our average loans and leases and deposits:
Table 5 Average Loans/Leases and Deposits 2011 Second Quarter vs. 2010 Second Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
Change
|
|
(dollar amounts in millions)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Loans/Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
13,370
|
|
|
$
|
12,244
|
|
|
$
|
1,126
|
|
|
|
9
|
%
|
Commercial real estate
|
|
|
6,233
|
|
|
|
7,364
|
|
|
|
(1,131
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,603
|
|
|
|
19,608
|
|
|
|
(5
|
)
|
|
|
|
|
Automobile
|
|
|
5,954
|
|
|
|
4,634
|
|
|
|
1,320
|
|
|
|
28
|
|
Home equity
|
|
|
7,874
|
|
|
|
7,544
|
|
|
|
330
|
|
|
|
4
|
|
Residential mortgage
|
|
|
4,566
|
|
|
|
4,608
|
|
|
|
(42
|
)
|
|
|
(1
|
)
|
Other loans
|
|
|
538
|
|
|
|
695
|
|
|
|
(157
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
18,932
|
|
|
|
17,481
|
|
|
|
1,451
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
38,535
|
|
|
$
|
37,089
|
|
|
$
|
1,446
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing
|
|
$
|
7,806
|
|
|
$
|
6,849
|
|
|
$
|
957
|
|
|
|
14
|
%
|
Demand deposits interest-bearing
|
|
|
5,565
|
|
|
|
5,971
|
|
|
|
(406
|
)
|
|
|
(7
|
)
|
Money market deposits
|
|
|
12,879
|
|
|
|
11,103
|
|
|
|
1,776
|
|
|
|
16
|
|
Savings and other domestic time
deposits
|
|
|
4,778
|
|
|
|
4,677
|
|
|
|
101
|
|
|
|
2
|
|
Core certificates of deposit
|
|
|
8,079
|
|
|
|
9,199
|
|
|
|
(1,120
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
39,107
|
|
|
|
37,799
|
|
|
|
1,308
|
|
|
|
3
|
|
Other deposits
|
|
|
2,147
|
|
|
|
2,568
|
|
|
|
(421
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
41,254
|
|
|
$
|
40,367
|
|
|
$
|
887
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $1.4 billion, or 4%, increase in average total loans and leases primarily reflected:
|
|
|
$1.3 billion, or 28%, increase in the average automobile portfolio. Automobile lending
is a core competency and continued area of growth. The growth from the year-ago quarter
exhibited further penetration within our historical geographic footprint, as well as the
positive impact of our expansion into Eastern Pennsylvania and selected New England states.
Origination quality remained high.
|
|
|
|
$1.1 billion, or 9%, increase in the average C&I portfolio. Growth from the year-ago
quarter reflected the benefits from our strategic initiatives including large corporate,
asset based lending, automobile floor plan lending, and equipment finance. In addition,
traditional middle-market loans continued to grow despite line utilization rates that
remained well below historical norms.
|
|
|
|
$0.3 billion, or 4%, increase in average home equity portfolio, reflecting continued
slower runoff due to the low interest rate environment.
|
Partially offset by:
|
|
|
$1.1 billion, or 15%, decrease in average CRE loans reflecting the continued execution
of our plan to reduce the CRE exposure, primarily in the noncore CRE segment. This
reduction is expected to continue through 2011, reflecting normal amortization, paydowns,
refinancing, and restructures.
|
The $0.9 billion, or 2%, increase in average total deposits from the year-ago quarter reflected:
|
|
|
$1.3 billion, or 3%, growth in average total core deposits. The drivers of this change
were a $1.8 billion, or 16%, growth in average money market deposits, and a $1.0 billion,
or 14%, growth in average noninterest-bearing demand deposits. These increases were
partially offset by a $1.1 billion, or 12%, decline in average core certificates of deposit
and a $0.4 billion, or 7%, decrease in average interest-bearing demand deposits.
|
Partially offset by:
|
|
|
$0.4 billion, or 16%, decline in other deposits including a $0.2 billion, or 11%,
decline in average brokered deposits and negotiable CDs, and a $0.2 billion, or 29%,
decrease in other domestic deposits of $250,000 or more, which reflected a
strategy of reducing such noncore funding.
|
16
2011 Second Quarter versus 2011 First Quarter
FTE net interest income decreased $1.1 million, or less than 1%, from the 2011 first quarter.
This reflected a 1% (3% annualized) decrease in average earning assets and a decrease in the FTE
net interest margin to 3.40% from 3.42%. The decrease in average earning assets reflected a
combination of factors including:
|
|
|
$0.5 billion, or 5% (22% annualized), decrease in average available-for-sale and other
and held-to-maturity securities given the low level of interest rates and the incremental
cost to grow interest-bearing deposits. Certain higher cost deposits were allowed to
mature without replacement, resulting in a reduction to the securities portfolio.
|
|
|
|
$0.2 billion decline in loans held for sale as our mortgage pipeline slowed considerably
during the current quarter and sales of prior originations were completed.
|
The 2 basis points decline in the FTE net interest margin reflected a reduction in
derivatives income and lower loan yields, partially offset by the positive impact of increases in
low cost deposits and improved deposit pricing.
The following table details the change in our average loans / leases and deposits:
Table 6 Average Loans/Leases and Deposits 2011 Second Quarter vs. 2011 First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
Change
|
|
(dollar amounts in millions)
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
Amount
|
|
|
Percent
|
|
Loans/Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
13,370
|
|
|
$
|
13,121
|
|
|
$
|
249
|
|
|
|
2
|
%
|
Commercial real estate
|
|
|
6,233
|
|
|
|
6,524
|
|
|
|
(291
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,603
|
|
|
|
19,645
|
|
|
|
(42
|
)
|
|
|
|
|
Automobile
|
|
|
5,954
|
|
|
|
5,701
|
|
|
|
253
|
|
|
|
4
|
|
Home equity
|
|
|
7,874
|
|
|
|
7,728
|
|
|
|
146
|
|
|
|
2
|
|
Residential mortgage
|
|
|
4,566
|
|
|
|
4,465
|
|
|
|
101
|
|
|
|
2
|
|
Other consumer
|
|
|
538
|
|
|
|
559
|
|
|
|
(21
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
18,932
|
|
|
|
18,453
|
|
|
|
479
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
38,535
|
|
|
$
|
38,098
|
|
|
$
|
437
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing
|
|
$
|
7,806
|
|
|
$
|
7,333
|
|
|
$
|
473
|
|
|
|
6
|
%
|
Demand deposits interest-bearing
|
|
|
5,565
|
|
|
|
5,357
|
|
|
|
208
|
|
|
|
4
|
|
Money market deposits
|
|
|
12,879
|
|
|
|
13,492
|
|
|
|
(613
|
)
|
|
|
(5
|
)
|
Savings and other domestic time
deposits
|
|
|
4,778
|
|
|
|
4,701
|
|
|
|
77
|
|
|
|
2
|
|
Core certificates of deposit
|
|
|
8,079
|
|
|
|
8,391
|
|
|
|
(312
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
39,107
|
|
|
|
39,274
|
|
|
|
(167
|
)
|
|
|
|
|
Other deposits
|
|
|
2,147
|
|
|
|
2,390
|
|
|
|
(243
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
41,254
|
|
|
$
|
41,664
|
|
|
$
|
(410
|
)
|
|
|
(1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $0.4 billion, or 1% (5% annualized), increase in average total loans and leases reflected:
|
|
|
$0.2 billion, or 2% (8% annualized), growth in the average C&I portfolio. The growth in
the C&I portfolio during the second quarter came from several business lines including
business banking, large corporate, middle market, asset based lending, and equipment
finance. The growth was also evident across our geographic footprint, further contributing
to the diversity of the portfolio. Non-automobile floorplan C&I utilization rates were
little changed from the end of the prior quarter. In contrast, automobile floor plan
utilization rates were down, primarily reflecting the slowdown in production by Japanese
manufacturers.
|
|
|
|
$0.3 billion, or 4% (18% annualized), growth in the average automobile portfolio. We
continued to originate very high quality loans with attractive returns. We focus on
larger, multi-franchised, well-capitalized dealers that are rarely reliant on the success
of one franchise to generate profitability. While the used automobile market remained very
strong, we increased
our originations of new vehicle loans, which reflected a reduction by the captive finance
companies in the number and magnitude of incentive programs offered through dealers due to
supply concerns.
|
17
Partially offset by:
|
|
|
$0.3 billion, or 4% (18% annualized), decline in average CRE loans, primarily as a
result of our on-going strategy to reduce our exposure to the commercial real estate
market. We were successful in reducing exposure across virtually all of the CRE project
types that we actively manage through our concentration management process. The decline in
noncore CRE accounted for the vast majority of the decline in the total CRE portfolio. The
noncore CRE portfolio declines reflected paydowns, refinancing, and NCOs. The core CRE
portfolio continued to exhibit high quality characteristics with minimal downgrade or NCO
activity.
|
The $0.4 billion, or 1% (4% annualized), decrease in average total deposits from the 2011 first
quarter reflected:
|
|
|
$0.6 billion, or 5% (18% annualized), decline in average money market deposits,
reflecting lowered pricing on our money market accounts.
|
|
|
|
$0.3 billion, or 4% (15% annualized), decrease in average core certificates of deposit
as rates offered on new certificates of deposits declined.
|
Partially offset by:
|
|
|
$0.5 billion, or 6% (26% annualized), increase in average noninterest-bearing demand
deposit accounts. This was driven primarily by growth in commercial noninterest-bearing
demand deposits related to government finance and business banking.
|
|
|
|
$0.2 billion, or 4% (16% annualized), growth in interest-bearing demand deposits,
primarily driven by consumer checking account growth.
|
18
Tables 7 and 8 reflect quarterly average balance sheets and rates earned and paid on
interest-earning assets and interest-bearing liabilities.
Table 7 Consolidated Quarterly Average Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2011
|
|
|
2010
|
|
|
2Q11 vs. 2Q10
|
|
(dollar amounts in millions)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
Amount
|
|
|
Percent
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks
|
|
$
|
131
|
|
|
$
|
130
|
|
|
$
|
218
|
|
|
$
|
282
|
|
|
$
|
309
|
|
|
$
|
(178
|
)
|
|
|
(58)
|
%
|
Trading account securities
|
|
|
112
|
|
|
|
144
|
|
|
|
297
|
|
|
|
110
|
|
|
|
127
|
|
|
|
(15
|
)
|
|
|
(12
|
)
|
Federal funds sold and securities purchased under
resale agreement
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
181
|
|
|
|
420
|
|
|
|
779
|
|
|
|
663
|
|
|
|
323
|
|
|
|
(142
|
)
|
|
|
(44
|
)
|
Available-for-sale and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
8,428
|
|
|
|
9,108
|
|
|
|
9,747
|
|
|
|
8,876
|
|
|
|
8,369
|
|
|
|
59
|
|
|
|
1
|
|
Tax-exempt
|
|
|
436
|
|
|
|
445
|
|
|
|
449
|
|
|
|
365
|
|
|
|
389
|
|
|
|
47
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale and other securities
|
|
|
8,864
|
|
|
|
9,553
|
|
|
|
10,196
|
|
|
|
9,241
|
|
|
|
8,758
|
|
|
|
106
|
|
|
|
1
|
|
Held-to-maturity securities taxable
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174
|
|
|
|
|
|
Loans and leases: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
13,370
|
|
|
|
13,121
|
|
|
|
12,767
|
|
|
|
12,393
|
|
|
|
12,244
|
|
|
|
1,126
|
|
|
|
9
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
554
|
|
|
|
611
|
|
|
|
716
|
|
|
|
989
|
|
|
|
1,279
|
|
|
|
(725
|
)
|
|
|
(57
|
)
|
Commercial
|
|
|
5,679
|
|
|
|
5,913
|
|
|
|
6,082
|
|
|
|
6,084
|
|
|
|
6,085
|
|
|
|
(406
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
6,233
|
|
|
|
6,524
|
|
|
|
6,798
|
|
|
|
7,073
|
|
|
|
7,364
|
|
|
|
(1,131
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,603
|
|
|
|
19,645
|
|
|
|
19,565
|
|
|
|
19,466
|
|
|
|
19,608
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
5,954
|
|
|
|
5,701
|
|
|
|
5,520
|
|
|
|
5,140
|
|
|
|
4,634
|
|
|
|
1,320
|
|
|
|
28
|
|
Home equity
|
|
|
7,874
|
|
|
|
7,728
|
|
|
|
7,709
|
|
|
|
7,567
|
|
|
|
7,544
|
|
|
|
330
|
|
|
|
4
|
|
Residential mortgage
|
|
|
4,566
|
|
|
|
4,465
|
|
|
|
4,430
|
|
|
|
4,389
|
|
|
|
4,608
|
|
|
|
(42
|
)
|
|
|
(1
|
)
|
Other consumer
|
|
|
538
|
|
|
|
559
|
|
|
|
576
|
|
|
|
653
|
|
|
|
695
|
|
|
|
(157
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
18,932
|
|
|
|
18,453
|
|
|
|
18,235
|
|
|
|
17,749
|
|
|
|
17,481
|
|
|
|
1,451
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
38,535
|
|
|
|
38,098
|
|
|
|
37,800
|
|
|
|
37,215
|
|
|
|
37,089
|
|
|
|
1,446
|
|
|
|
4
|
|
Allowance for loan and lease losses
|
|
|
(1,128
|
)
|
|
|
(1,231
|
)
|
|
|
(1,323
|
)
|
|
|
(1,384
|
)
|
|
|
(1,506
|
)
|
|
|
378
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
37,407
|
|
|
|
36,867
|
|
|
|
36,477
|
|
|
|
35,831
|
|
|
|
35,583
|
|
|
|
1,824
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
48,018
|
|
|
|
48,345
|
|
|
|
49,290
|
|
|
|
47,511
|
|
|
|
46,606
|
|
|
|
1,412
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
1,068
|
|
|
|
1,299
|
|
|
|
1,187
|
|
|
|
1,618
|
|
|
|
1,509
|
|
|
|
(441
|
)
|
|
|
(29
|
)
|
Intangible assets
|
|
|
652
|
|
|
|
665
|
|
|
|
679
|
|
|
|
695
|
|
|
|
710
|
|
|
|
(58
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other assets
|
|
|
4,160
|
|
|
|
4,291
|
|
|
|
4,313
|
|
|
|
4,277
|
|
|
|
4,384
|
|
|
|
(224
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
52,770
|
|
|
$
|
53,369
|
|
|
$
|
54,146
|
|
|
$
|
52,717
|
|
|
$
|
51,703
|
|
|
$
|
1,067
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing
|
|
$
|
7,806
|
|
|
$
|
7,333
|
|
|
$
|
7,188
|
|
|
$
|
6,768
|
|
|
$
|
6,849
|
|
|
$
|
957
|
|
|
|
14
|
%
|
Demand deposits interest-bearing
|
|
|
5,565
|
|
|
|
5,357
|
|
|
|
5,317
|
|
|
|
5,319
|
|
|
|
5,971
|
|
|
|
(406
|
)
|
|
|
(7
|
)
|
Money market deposits
|
|
|
12,879
|
|
|
|
13,492
|
|
|
|
13,158
|
|
|
|
12,336
|
|
|
|
11,103
|
|
|
|
1,776
|
|
|
|
16
|
|
Savings and other domestic deposits
|
|
|
4,778
|
|
|
|
4,701
|
|
|
|
4,640
|
|
|
|
4,639
|
|
|
|
4,677
|
|
|
|
101
|
|
|
|
2
|
|
Core certificates of deposit
|
|
|
8,079
|
|
|
|
8,391
|
|
|
|
8,646
|
|
|
|
8,948
|
|
|
|
9,199
|
|
|
|
(1,120
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
39,107
|
|
|
|
39,274
|
|
|
|
38,949
|
|
|
|
38,010
|
|
|
|
37,799
|
|
|
|
1,308
|
|
|
|
3
|
|
Other domestic time deposits of $250,000 or more
|
|
|
467
|
|
|
|
606
|
|
|
|
737
|
|
|
|
690
|
|
|
|
661
|
|
|
|
(194
|
)
|
|
|
(29
|
)
|
Brokered deposits and negotiable CDs
|
|
|
1,333
|
|
|
|
1,410
|
|
|
|
1,575
|
|
|
|
1,495
|
|
|
|
1,505
|
|
|
|
(172
|
)
|
|
|
(11
|
)
|
Deposits in foreign offices
|
|
|
347
|
|
|
|
374
|
|
|
|
443
|
|
|
|
451
|
|
|
|
402
|
|
|
|
(55
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
41,254
|
|
|
|
41,664
|
|
|
|
41,704
|
|
|
|
40,646
|
|
|
|
40,367
|
|
|
|
887
|
|
|
|
2
|
|
Short-term borrowings
|
|
|
2,112
|
|
|
|
2,134
|
|
|
|
2,134
|
|
|
|
1,739
|
|
|
|
966
|
|
|
|
1,146
|
|
|
|
119
|
|
Federal Home Loan Bank advances
|
|
|
97
|
|
|
|
30
|
|
|
|
112
|
|
|
|
188
|
|
|
|
212
|
|
|
|
(115
|
)
|
|
|
(54
|
)
|
Subordinated notes and other long-term debt
|
|
|
3,249
|
|
|
|
3,525
|
|
|
|
3,558
|
|
|
|
3,672
|
|
|
|
3,836
|
|
|
|
(587
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
38,906
|
|
|
|
40,020
|
|
|
|
40,320
|
|
|
|
39,477
|
|
|
|
38,532
|
|
|
|
374
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
913
|
|
|
|
994
|
|
|
|
993
|
|
|
|
952
|
|
|
|
924
|
|
|
|
(11
|
)
|
|
|
(1
|
)
|
Shareholders equity
|
|
|
5,145
|
|
|
|
5,022
|
|
|
|
5,645
|
|
|
|
5,520
|
|
|
|
5,398
|
|
|
|
(253
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
52,770
|
|
|
$
|
53,369
|
|
|
$
|
54,146
|
|
|
$
|
52,717
|
|
|
$
|
51,703
|
|
|
$
|
1,067
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For purposes of this analysis, NALs are reflected in the average balances of loans.
|
19
Table 8 Consolidated Quarterly Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rates (2)
|
|
|
|
2011
|
|
|
2010
|
|
Fully-taxable equivalent basis (1)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks
|
|
|
0.22
|
%
|
|
|
0.11
|
%
|
|
|
0.63
|
%
|
|
|
0.21
|
%
|
|
|
0.20
|
%
|
Trading account securities
|
|
|
1.59
|
|
|
|
1.37
|
|
|
|
1.98
|
|
|
|
1.20
|
|
|
|
1.74
|
|
Federal funds sold and securities purchased under
resale agreement
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
4.97
|
|
|
|
4.08
|
|
|
|
4.01
|
|
|
|
5.75
|
|
|
|
5.02
|
|
Available-for-sale and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2.59
|
|
|
|
2.53
|
|
|
|
2.42
|
|
|
|
2.77
|
|
|
|
2.85
|
|
Tax-exempt
|
|
|
4.02
|
|
|
|
4.70
|
|
|
|
4.59
|
|
|
|
4.70
|
|
|
|
4.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale and other securities
|
|
|
2.66
|
|
|
|
2.63
|
|
|
|
2.52
|
|
|
|
2.84
|
|
|
|
2.93
|
|
Held-to-maturity securities taxable
|
|
|
2.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
4.31
|
|
|
|
4.57
|
|
|
|
4.94
|
|
|
|
5.14
|
|
|
|
5.31
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3.37
|
|
|
|
3.36
|
|
|
|
3.07
|
|
|
|
2.83
|
|
|
|
2.61
|
|
Commercial
|
|
|
3.90
|
|
|
|
3.93
|
|
|
|
3.92
|
|
|
|
3.91
|
|
|
|
3.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3.84
|
|
|
|
3.88
|
|
|
|
3.83
|
|
|
|
3.76
|
|
|
|
3.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
4.16
|
|
|
|
4.34
|
|
|
|
4.56
|
|
|
|
4.64
|
|
|
|
4.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
5.06
|
|
|
|
5.22
|
|
|
|
5.46
|
|
|
|
5.79
|
|
|
|
6.46
|
|
Home equity
|
|
|
4.49
|
|
|
|
4.54
|
|
|
|
4.64
|
|
|
|
4.74
|
|
|
|
5.26
|
|
Residential mortgage
|
|
|
4.62
|
|
|
|
4.76
|
|
|
|
4.82
|
|
|
|
4.97
|
|
|
|
4.70
|
|
Other consumer
|
|
|
7.76
|
|
|
|
7.85
|
|
|
|
7.92
|
|
|
|
7.10
|
|
|
|
6.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
4.79
|
|
|
|
4.90
|
|
|
|
5.04
|
|
|
|
5.19
|
|
|
|
5.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
4.47
|
|
|
|
4.61
|
|
|
|
4.79
|
|
|
|
4.90
|
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
4.14
|
%
|
|
|
4.24
|
%
|
|
|
4.29
|
%
|
|
|
4.49
|
%
|
|
|
4.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Demand deposits interest-bearing
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.13
|
|
|
|
0.17
|
|
|
|
0.22
|
|
Money market deposits
|
|
|
0.40
|
|
|
|
0.50
|
|
|
|
0.77
|
|
|
|
0.86
|
|
|
|
0.93
|
|
Savings and other domestic deposits
|
|
|
0.74
|
|
|
|
0.81
|
|
|
|
0.90
|
|
|
|
0.99
|
|
|
|
1.07
|
|
Core certificates of deposit
|
|
|
2.04
|
|
|
|
2.07
|
|
|
|
2.11
|
|
|
|
2.31
|
|
|
|
2.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
0.82
|
|
|
|
0.89
|
|
|
|
1.05
|
|
|
|
1.18
|
|
|
|
1.33
|
|
Other domestic time deposits of $250,000 or more
|
|
|
1.01
|
|
|
|
1.08
|
|
|
|
1.21
|
|
|
|
1.28
|
|
|
|
1.37
|
|
Brokered deposits and negotiable CDs
|
|
|
0.89
|
|
|
|
1.11
|
|
|
|
1.53
|
|
|
|
2.21
|
|
|
|
2.56
|
|
Deposits in foreign offices
|
|
|
0.26
|
|
|
|
0.20
|
|
|
|
0.17
|
|
|
|
0.22
|
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
0.82
|
|
|
|
0.90
|
|
|
|
1.06
|
|
|
|
1.21
|
|
|
|
1.37
|
|
Short-term borrowings
|
|
|
0.16
|
|
|
|
0.18
|
|
|
|
0.20
|
|
|
|
0.22
|
|
|
|
0.21
|
|
Federal Home Loan Bank advances
|
|
|
0.88
|
|
|
|
2.98
|
|
|
|
0.95
|
|
|
|
1.25
|
|
|
|
1.93
|
|
Subordinated notes and other long-term debt
|
|
|
2.39
|
|
|
|
2.34
|
|
|
|
2.15
|
|
|
|
2.15
|
|
|
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
0.91
|
%
|
|
|
0.99
|
%
|
|
|
1.11
|
%
|
|
|
1.25
|
%
|
|
|
1.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
3.19
|
%
|
|
|
3.21
|
%
|
|
|
3.16
|
%
|
|
|
3.24
|
%
|
|
|
3.22
|
%
|
Impact of noninterest-bearing funds on margin
|
|
|
0.21
|
|
|
|
0.21
|
|
|
|
0.21
|
|
|
|
0.21
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
3.40
|
%
|
|
|
3.42
|
%
|
|
|
3.37
|
%
|
|
|
3.45
|
%
|
|
|
3.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
FTE yields are calculated assuming a 35% tax rate.
|
|
(2)
|
|
Loan and lease and deposit average rates include impact of applicable derivatives, non-deferrable fees, and amortized deferred fees.
|
|
(3)
|
|
For purposes of this analysis, NALs are reflected in the average balances of loans.
|
20
2011 First Six Months versus 2010 First Six Months
Fully-taxable equivalent net interest income for the six-month period of 2011 increased $17.2
million, or 2%, from the
comparable year-ago period. This reflected the benefit of a 4% increase in average total
earning assets partially offset by a decrease in the net interest margin to 3.41% from 3.47%. The
increase in average earning assets reflected a combination of factors including:
|
|
|
$1.3 billion, or 3%, increase in average total loans and leases.
|
|
|
|
$0.7 billion, or 7%, increase in average total available-for-sale and other and
held-to-maturity securities.
|
The 6 basis points decrease in the net interest margin reflected reduction in derivatives
income, lower loan yields, and lower securities yields, partially offset by the positive impact of
increases in low cost deposits and improved deposit pricing.
The following table details the change in our reported loans and deposits:
Table 9 Average Loans/Leases and Deposits 2011 First Six Months vs. 2010 First Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
(dollar amounts in millions)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Loans/Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
13,246
|
|
|
$
|
12,279
|
|
|
$
|
967
|
|
|
|
8
|
%
|
Commercial real estate
|
|
|
6,377
|
|
|
|
7,520
|
|
|
|
(1,143
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,623
|
|
|
|
19,799
|
|
|
|
(176
|
)
|
|
|
(1
|
)
|
Automobile
|
|
|
5,829
|
|
|
|
4,443
|
|
|
|
1,386
|
|
|
|
31
|
|
Home equity
|
|
|
7,801
|
|
|
|
7,541
|
|
|
|
260
|
|
|
|
3
|
|
Residential mortgage
|
|
|
4,516
|
|
|
|
4,543
|
|
|
|
(27
|
)
|
|
|
(1
|
)
|
Other consumer
|
|
|
548
|
|
|
|
709
|
|
|
|
(161
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
18,694
|
|
|
|
17,236
|
|
|
|
1,458
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
38,317
|
|
|
$
|
37,035
|
|
|
$
|
1,282
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing
|
|
$
|
7,571
|
|
|
$
|
6,739
|
|
|
$
|
832
|
|
|
|
12
|
%
|
Demand deposits interest-bearing
|
|
|
5,462
|
|
|
|
5,844
|
|
|
|
(382
|
)
|
|
|
(7
|
)
|
Money market deposits
|
|
|
13,184
|
|
|
|
10,723
|
|
|
|
2,461
|
|
|
|
23
|
|
Savings and other domestic deposits
|
|
|
4,740
|
|
|
|
4,645
|
|
|
|
95
|
|
|
|
2
|
|
Core certificates of deposit
|
|
|
8,234
|
|
|
|
9,586
|
|
|
|
(1,352
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
39,191
|
|
|
|
37,537
|
|
|
|
1,654
|
|
|
|
4
|
|
Other deposits
|
|
|
2,268
|
|
|
|
2,759
|
|
|
|
(491
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
41,459
|
|
|
$
|
40,296
|
|
|
$
|
1,163
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $1.3 billion, or 3%, increase in average total loans and leases primarily reflected:
|
|
|
$1.4 billion, or 31%, increase in the average automobile portfolio. Automobile lending
is a core competency and continued area of growth. The growth from the year-ago period
exhibited further penetration within our historical geographic footprint, as well as the
positive impact of our expansion into Eastern Pennsylvania and selected New England states.
Origination quality remained high.
|
|
|
|
$1.0 billion, or 8%, increase in the average C&I portfolio. Growth from the year-ago
period reflected the benefits from our strategic initiatives including large corporate,
asset based lending, automobile floor plan lending, and equipment finance. Traditional
middle-market loans continued to grow despite line utilization rates that remain well below
historical norms.
|
|
|
|
$0.3 billion, or 3%, increase in the average home equity portfolio, reflecting higher
originations and continued slower runoff.
|
21
Partially offset by:
|
|
|
$1.1 billion, or 15%, decrease in average CRE loans reflecting the continued execution
of our plan to reduce the CRE exposure, primarily in the noncore CRE segment. This
reduction is expected to continue through 2011, reflecting normal amortization, paydowns,
and refinancing.
|
The $1.2 billion, or 3%, increase in average total deposits reflected:
|
|
|
$1.7 billion, or 4%, growth in average total core deposits. The drivers of this change
were a $2.5 billion, or 23%, growth in average money market deposits, and a $0.8 billion,
or 12%, growth in average noninterest-bearing demand deposits. These increases were
partially offset by a $1.4 billion, or 14%, decline in average core certificates of deposit
and a $0.4 billion, or 7%, decrease in average interest-bearing demand deposits.
|
Partially offset by:
|
|
|
$0.5 billion, or 18%, decline in other deposits including a $0.3 billion, or 18%,
decline in average brokered deposits and negotiable CDs, and a $0.1 billion, or 21%,
decrease in other domestic time deposits of $250,000 or more, reflecting a strategy of
reducing such noncore funding.
|
22
Table 10 Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD Average Balances
|
|
|
YTD Average Rates (2)
|
|
Fully-taxable equivalent basis (1)
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
(dollar amounts in millions)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
|
2011
|
|
|
2010
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks
|
|
$
|
130
|
|
|
$
|
328
|
|
|
$
|
(198
|
)
|
|
|
(60)
|
%
|
|
|
0.17
|
%
|
|
|
0.19
|
%
|
Trading account securities
|
|
|
128
|
|
|
|
112
|
|
|
|
16
|
|
|
|
14
|
|
|
|
1.47
|
|
|
|
1.92
|
|
Federal funds sold and securities purchased under
resale agreement
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
0.09
|
|
|
|
|
|
Loans held for sale
|
|
|
300
|
|
|
|
334
|
|
|
|
(34
|
)
|
|
|
(10
|
)
|
|
|
4.36
|
|
|
|
5.00
|
|
Available-for-sale and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
8,766
|
|
|
|
8,197
|
|
|
|
569
|
|
|
|
7
|
|
|
|
2.56
|
|
|
|
2.89
|
|
Tax-exempt
|
|
|
441
|
|
|
|
418
|
|
|
|
23
|
|
|
|
6
|
|
|
|
4.37
|
|
|
|
4.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale and other securities
|
|
|
9,207
|
|
|
|
8,615
|
|
|
|
592
|
|
|
|
7
|
|
|
|
2.65
|
|
|
|
2.97
|
|
Total held-to-maturity securities
|
|
|
87
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
2.95
|
|
|
|
|
|
Loans and leases: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
13,246
|
|
|
|
12,279
|
|
|
|
967
|
|
|
|
8
|
|
|
|
4.44
|
|
|
|
5.45
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
582
|
|
|
|
1,344
|
|
|
|
(762
|
)
|
|
|
(57
|
)
|
|
|
3.37
|
|
|
|
2.64
|
|
Commercial
|
|
|
5,795
|
|
|
|
6,176
|
|
|
|
(381
|
)
|
|
|
(6
|
)
|
|
|
3.91
|
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
6,377
|
|
|
|
7,520
|
|
|
|
(1,143
|
)
|
|
|
(15
|
)
|
|
|
3.86
|
|
|
|
3.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,623
|
|
|
|
19,799
|
|
|
|
(176
|
)
|
|
|
(1
|
)
|
|
|
4.25
|
|
|
|
4.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
5,829
|
|
|
|
4,443
|
|
|
|
1,386
|
|
|
|
31
|
|
|
|
5.14
|
|
|
|
6.54
|
|
Home equity
|
|
|
7,801
|
|
|
|
7,541
|
|
|
|
260
|
|
|
|
3
|
|
|
|
4.51
|
|
|
|
5.42
|
|
Residential mortgage
|
|
|
4,516
|
|
|
|
4,543
|
|
|
|
(27
|
)
|
|
|
(1
|
)
|
|
|
4.69
|
|
|
|
4.79
|
|
Other consumer
|
|
|
548
|
|
|
|
709
|
|
|
|
(161
|
)
|
|
|
(23
|
)
|
|
|
7.80
|
|
|
|
6.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
18,694
|
|
|
|
17,236
|
|
|
|
1,458
|
|
|
|
8
|
|
|
|
4.85
|
|
|
|
5.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
38,317
|
|
|
|
37,035
|
|
|
|
1,282
|
|
|
|
3
|
|
|
|
4.54
|
|
|
|
5.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(1,179
|
)
|
|
|
(1,508
|
)
|
|
|
329
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
37,138
|
|
|
|
35,527
|
|
|
|
1,611
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
48,180
|
|
|
|
46,424
|
|
|
|
1,756
|
|
|
|
4
|
|
|
|
4.19
|
%
|
|
|
4.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
1,183
|
|
|
|
1,634
|
|
|
|
(451
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
659
|
|
|
|
717
|
|
|
|
(58
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
All other assets
|
|
|
4,224
|
|
|
|
4,436
|
|
|
|
(212
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
53,067
|
|
|
$
|
51,703
|
|
|
$
|
1,364
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing
|
|
$
|
7,571
|
|
|
$
|
6,739
|
|
|
$
|
832
|
|
|
|
12
|
%
|
|
|
|
%
|
|
|
|
%
|
Demand deposits interest-bearing
|
|
|
5,462
|
|
|
|
5,844
|
|
|
|
(382
|
)
|
|
|
(7
|
)
|
|
|
0.09
|
|
|
|
0.22
|
|
Money market deposits
|
|
|
13,184
|
|
|
|
10,723
|
|
|
|
2,461
|
|
|
|
23
|
|
|
|
0.45
|
|
|
|
0.96
|
|
Savings and other domestic deposits
|
|
|
4,740
|
|
|
|
4,645
|
|
|
|
95
|
|
|
|
2
|
|
|
|
0.78
|
|
|
|
1.13
|
|
Core certificates of deposit
|
|
|
8,234
|
|
|
|
9,586
|
|
|
|
(1,352
|
)
|
|
|
(14
|
)
|
|
|
2.05
|
|
|
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
39,191
|
|
|
|
37,537
|
|
|
|
1,654
|
|
|
|
4
|
|
|
|
0.86
|
|
|
|
1.42
|
|
Other domestic time deposits of $250,000 or more
|
|
|
536
|
|
|
|
680
|
|
|
|
(144
|
)
|
|
|
(21
|
)
|
|
|
1.05
|
|
|
|
1.41
|
|
Brokered deposits and negotiable CDs
|
|
|
1,372
|
|
|
|
1,673
|
|
|
|
(301
|
)
|
|
|
(18
|
)
|
|
|
1.00
|
|
|
|
2.52
|
|
Deposits in foreign offices
|
|
|
360
|
|
|
|
406
|
|
|
|
(46
|
)
|
|
|
(11
|
)
|
|
|
0.23
|
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
41,459
|
|
|
|
40,296
|
|
|
|
1,163
|
|
|
|
3
|
|
|
|
0.86
|
|
|
|
1.46
|
|
Short-term borrowings
|
|
|
2,123
|
|
|
|
947
|
|
|
|
1,176
|
|
|
|
124
|
|
|
|
0.17
|
|
|
|
0.21
|
|
Federal Home Loan Bank advances
|
|
|
63
|
|
|
|
196
|
|
|
|
(133
|
)
|
|
|
(68
|
)
|
|
|
1.36
|
|
|
|
2.28
|
|
Subordinated notes and other long-term debt
|
|
|
3,386
|
|
|
|
3,948
|
|
|
|
(562
|
)
|
|
|
(14
|
)
|
|
|
2.36
|
|
|
|
2.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
39,460
|
|
|
|
38,648
|
|
|
|
812
|
|
|
|
2
|
|
|
|
0.95
|
|
|
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
952
|
|
|
|
935
|
|
|
|
17
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
5,084
|
|
|
|
5,381
|
|
|
|
(297
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
53,067
|
|
|
$
|
51,703
|
|
|
$
|
1,364
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.20
|
|
|
|
3.21
|
|
Impact of noninterest-bearing funds on margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.21
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.41
|
%
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
FTE yields are calculated assuming a 35% tax rate.
|
|
(2)
|
|
Loan, lease, and deposit average rates include the impact of applicable derivatives, non-deferrable fees, and amortized deferred fees.
|
|
(3)
|
|
For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans.
|
23
Provision for Credit Losses
(This section should be read in conjunction with Significant Item 2, the Credit Risk section, and
the Franklin-related Impacts section.)
The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at
levels appropriate to absorb our estimate of inherent credit losses in the loan and lease portfolio
and the portfolio of unfunded loan commitments and letters-of-credit.
The provision for credit losses for the 2011 second quarter was $35.8 million, down $13.6
million, or 28%, from the prior quarter and down $157.6 million, or 81%, from the year-ago quarter.
The provision for credit losses for the first six-month period of 2011 was $85.2 million, down
$343.2 million, or 80%, from the year-ago period. These declines reflected a combination of lower
NCOs and a reduction in commercial Criticized loans. The reduction in commercial Criticized loans
reflected the resolution of problem credits for which reserves had been previously established.
The current quarters provision for credit losses was $61.7 million less than total NCOs and the
provision for credit losses for the first six-month period of 2011 was $177.4 million less than
total NCOs
(see Credit Quality discussion).
Noninterest Income
The following table reflects noninterest income for each of the past five quarters:
Table 11 Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Service charges on deposit accounts
|
|
$
|
60,675
|
|
|
$
|
54,324
|
|
|
$
|
55,810
|
|
|
$
|
65,932
|
|
|
$
|
75,934
|
|
Mortgage banking income
|
|
|
23,835
|
|
|
|
22,684
|
|
|
|
53,169
|
|
|
|
52,045
|
|
|
|
45,530
|
|
Trust services
|
|
|
30,392
|
|
|
|
30,742
|
|
|
|
29,394
|
|
|
|
26,997
|
|
|
|
28,399
|
|
Electronic banking
|
|
|
31,728
|
|
|
|
28,786
|
|
|
|
28,900
|
|
|
|
28,090
|
|
|
|
28,107
|
|
Insurance income
|
|
|
16,399
|
|
|
|
17,945
|
|
|
|
19,678
|
|
|
|
19,801
|
|
|
|
18,074
|
|
Brokerage income
|
|
|
20,819
|
|
|
|
20,511
|
|
|
|
16,953
|
|
|
|
16,575
|
|
|
|
18,425
|
|
Bank owned life insurance income
|
|
|
17,602
|
|
|
|
14,819
|
|
|
|
16,113
|
|
|
|
14,091
|
|
|
|
14,392
|
|
Automobile operating lease income
|
|
|
7,307
|
|
|
|
8,847
|
|
|
|
10,463
|
|
|
|
11,356
|
|
|
|
11,842
|
|
Securities gains (losses)
|
|
|
1,507
|
|
|
|
40
|
|
|
|
(103
|
)
|
|
|
(296
|
)
|
|
|
156
|
|
Other income
|
|
|
45,503
|
|
|
|
38,247
|
|
|
|
33,843
|
|
|
|
32,552
|
|
|
|
28,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
255,767
|
|
|
$
|
236,945
|
|
|
$
|
264,220
|
|
|
$
|
267,143
|
|
|
$
|
269,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details mortgage banking income and the net impact of MSR hedging
activity for each of the past five quarters:
Table 12 Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands, except as noted)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Mortgage banking income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and secondary marketing
|
|
$
|
11,522
|
|
|
$
|
19,799
|
|
|
$
|
48,236
|
|
|
$
|
35,840
|
|
|
$
|
19,778
|
|
Servicing fees
|
|
|
12,417
|
|
|
|
12,546
|
|
|
|
11,474
|
|
|
|
12,053
|
|
|
|
12,178
|
|
Amortization of capitalized servicing
|
|
|
(9,052
|
)
|
|
|
(9,863
|
)
|
|
|
(13,960
|
)
|
|
|
(13,003
|
)
|
|
|
(10,137
|
)
|
Other mortgage banking income
|
|
|
4,259
|
|
|
|
3,769
|
|
|
|
4,789
|
|
|
|
4,966
|
|
|
|
3,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
19,146
|
|
|
|
26,251
|
|
|
|
50,539
|
|
|
|
39,856
|
|
|
|
25,483
|
|
MSR valuation adjustment
(1)
|
|
|
(8,292
|
)
|
|
|
774
|
|
|
|
31,319
|
|
|
|
(12,047
|
)
|
|
|
(26,221
|
)
|
Net trading gains (losses) related to MSR hedging
|
|
|
12,981
|
|
|
|
(4,341
|
)
|
|
|
(28,689
|
)
|
|
|
24,236
|
|
|
|
46,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking income
|
|
$
|
23,835
|
|
|
$
|
22,684
|
|
|
$
|
53,169
|
|
|
$
|
52,045
|
|
|
$
|
45,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage originations (in millions)
|
|
$
|
916
|
|
|
$
|
929
|
|
|
$
|
1,827
|
|
|
$
|
1,619
|
|
|
$
|
1,161
|
|
Average trading account securities used to hedge
MSRs (in millions)
|
|
|
22
|
|
|
|
46
|
|
|
|
184
|
|
|
|
23
|
|
|
|
28
|
|
Capitalized mortgage servicing rights
(2)
|
|
|
189,740
|
|
|
|
202,559
|
|
|
|
196,194
|
|
|
|
161,594
|
|
|
|
179,138
|
|
Total mortgages serviced for others (in millions)
(2)
|
|
|
16,315
|
|
|
|
16,456
|
|
|
|
15,933
|
|
|
|
15,713
|
|
|
|
15,954
|
|
MSR % of investor servicing portfolio
|
|
|
1.16
|
%
|
|
|
1.23
|
%
|
|
|
1.23
|
%
|
|
|
1.03
|
%
|
|
|
1.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of MSR hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR valuation adjustment
(1)
|
|
$
|
(8,292
|
)
|
|
$
|
774
|
|
|
$
|
31,319
|
|
|
$
|
(12,047
|
)
|
|
$
|
(26,221
|
)
|
Net trading gains (losses) related to MSR
hedging
|
|
|
12,981
|
|
|
|
(4,341
|
)
|
|
|
(28,689
|
)
|
|
|
24,236
|
|
|
|
46,268
|
|
Net interest income related to MSR hedging
|
|
|
84
|
|
|
|
99
|
|
|
|
713
|
|
|
|
32
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) of MSR hedging
|
|
$
|
4,773
|
|
|
$
|
(3,468
|
)
|
|
$
|
3,343
|
|
|
$
|
12,221
|
|
|
$
|
20,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The change in fair value for the period represents the MSR valuation adjustment, net of amortization of capitalized servicing.
|
|
(2)
|
|
At period end.
|
24
2011 Second Quarter versus 2010 Second Quarter
Noninterest income decreased $13.9 million, or 5%, from the year-ago quarter.
Table 13 Noninterest Income 2011 Second Quarter vs. 2010 Second Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
Change
|
|
(dollar amounts in thousands)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Service charges on
deposit accounts
|
|
$
|
60,675
|
|
|
$
|
75,934
|
|
|
$
|
(15,259
|
)
|
|
|
(20
|
)%
|
Mortgage banking income
|
|
|
23,835
|
|
|
|
45,530
|
|
|
|
(21,695
|
)
|
|
|
(48
|
)
|
Trust services
|
|
|
30,392
|
|
|
|
28,399
|
|
|
|
1,993
|
|
|
|
7
|
|
Electronic banking
|
|
|
31,728
|
|
|
|
28,107
|
|
|
|
3,621
|
|
|
|
13
|
|
Insurance income
|
|
|
16,399
|
|
|
|
18,074
|
|
|
|
(1,675
|
)
|
|
|
(9
|
)
|
Brokerage income
|
|
|
20,819
|
|
|
|
18,425
|
|
|
|
2,394
|
|
|
|
13
|
|
Bank owned life
insurance income
|
|
|
17,602
|
|
|
|
14,392
|
|
|
|
3,210
|
|
|
|
22
|
|
Automobile operating
lease income
|
|
|
7,307
|
|
|
|
11,842
|
|
|
|
(4,535
|
)
|
|
|
(38
|
)
|
Securities gains (losses)
|
|
|
1,507
|
|
|
|
156
|
|
|
|
1,351
|
|
|
|
866
|
|
Other income
|
|
|
45,503
|
|
|
|
28,784
|
|
|
|
16,719
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
255,767
|
|
|
$
|
269,643
|
|
|
$
|
(13,876
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $13.9 million, or 5%, decrease in total noninterest income from the year-ago quarter
reflected:
|
|
|
$21.7 million, or 48%, decrease in mortgage banking income. This primarily reflected a
$15.4 million decrease in MSR net hedging income and an $8.3 million, or 42%, decrease in
origination and secondary marketing income, as originations decreased 21% from the year-ago
quarter.
|
|
|
|
$15.3 million, or 20%, decline in service charges on deposit accounts, reflecting lower
personal service charges due to the implementation of the amendment to Reg E and lower
underlying activity levels.
|
|
|
|
$4.5 million, or 38%, decline in automobile operating lease income reflecting the impact
of a declining portfolio as a result of having exited that business in 2008.
|
Partially offset by:
|
|
|
$16.7 million, or 58%, increase in other income, of which $10.8 million was associated
with SBA gains and servicing. Also contributing to the growth were increases from the sale
of interest rate protection products and capital markets activities.
|
|
|
|
$3.6 million, or 13%, increase in electronic banking income, reflecting an increase in
debit card transaction volume and new account growth.
|
|
|
|
$3.2 million, or 22%, increase in bank owned life insurance income.
|
|
|
|
$2.4 million, or 13%, increase in brokerage income, primarily reflecting increased sales
of investment products.
|
|
|
|
$2.0 million, or 7%, increase in trust services income, due to a $10.3 billion increase
in total trust assets, including a $2.5 billion increase in assets under management. This
increase reflected improved market values and net growth in accounts.
|
25
2011 Second Quarter versus 2011 First Quarter
Noninterest income increased $18.8 million, or 8%, from the prior quarter.
Table 14 Noninterest Income 2011 Second Quarter vs. 2011 First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
Change
|
|
(dollar amounts in thousands)
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
Amount
|
|
|
Percent
|
|
Service charges on
deposit accounts
|
|
$
|
60,675
|
|
|
$
|
54,324
|
|
|
$
|
6,351
|
|
|
|
12
|
%
|
Mortgage banking income
|
|
|
23,835
|
|
|
|
22,684
|
|
|
|
1,151
|
|
|
|
5
|
|
Trust services
|
|
|
30,392
|
|
|
|
30,742
|
|
|
|
(350
|
)
|
|
|
(1
|
)
|
Electronic banking
|
|
|
31,728
|
|
|
|
28,786
|
|
|
|
2,942
|
|
|
|
10
|
|
Insurance income
|
|
|
16,399
|
|
|
|
17,945
|
|
|
|
(1,546
|
)
|
|
|
(9
|
)
|
Brokerage income
|
|
|
20,819
|
|
|
|
20,511
|
|
|
|
308
|
|
|
|
2
|
|
Bank owned life
insurance income
|
|
|
17,602
|
|
|
|
14,819
|
|
|
|
2,783
|
|
|
|
19
|
|
Automobile operating
lease income
|
|
|
7,307
|
|
|
|
8,847
|
|
|
|
(1,540
|
)
|
|
|
(17
|
)
|
Securities gains
|
|
|
1,507
|
|
|
|
40
|
|
|
|
1,467
|
|
|
|
3,668
|
|
Other income
|
|
|
45,503
|
|
|
|
38,247
|
|
|
|
7,256
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
255,767
|
|
|
$
|
236,945
|
|
|
$
|
18,822
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $18.8 million, or 8%, increase in total noninterest income from the prior quarter
reflected:
|
|
|
$7.3 million, or 19%, increase in other income, reflecting SBA gains, higher
market-related gains and capital markets income.
|
|
|
|
$6.4 million, or 12%, increase in service charges on deposit accounts, primarily
reflecting an increase in personal services charges, mostly due to higher NSF/OD fees.
|
|
|
|
$2.9 million, or 10%, increase in electronic banking income, reflecting higher activity
levels.
|
2011 First Six Months versus 2010 First Six Months
Noninterest income for the first six-month period of 2011 decreased $17.8 million, or 3%, from
the comparable year-ago period.
Table 15 Noninterest Income 2011 First Six Months vs. 2010 First Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
(dollar amounts in thousands)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Service charges on
deposit accounts
|
|
$
|
114,999
|
|
|
$
|
145,273
|
|
|
$
|
(30,274
|
)
|
|
|
(21
|
)%
|
Mortgage banking income
|
|
|
46,519
|
|
|
|
70,568
|
|
|
|
(24,049
|
)
|
|
|
(34
|
)
|
Trust services
|
|
|
61,134
|
|
|
|
56,164
|
|
|
|
4,970
|
|
|
|
9
|
|
Electronic banking
|
|
|
60,514
|
|
|
|
53,244
|
|
|
|
7,270
|
|
|
|
14
|
|
Insurance income
|
|
|
34,344
|
|
|
|
36,934
|
|
|
|
(2,590
|
)
|
|
|
(7
|
)
|
Brokerage income
|
|
|
41,330
|
|
|
|
35,327
|
|
|
|
6,003
|
|
|
|
17
|
|
Bank owned life
insurance income
|
|
|
32,421
|
|
|
|
30,862
|
|
|
|
1,559
|
|
|
|
5
|
|
Automobile operating
lease income
|
|
|
16,154
|
|
|
|
24,145
|
|
|
|
(7,991
|
)
|
|
|
(33
|
)
|
Securities gains
|
|
|
1,547
|
|
|
|
125
|
|
|
|
1,422
|
|
|
|
1,138
|
|
Other income
|
|
|
83,750
|
|
|
|
57,853
|
|
|
|
25,897
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
492,712
|
|
|
$
|
510,495
|
|
|
$
|
(17,783
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The following table details mortgage banking income and the net impact of MSR hedging
activity for the first six-month period of 2011 and 2010:
Table 16 Year to Date Mortgage Banking Income and Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
YTD Change 2011 vs 2010
|
|
(dollar amounts in thousands, except as noted)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and secondary marketing
|
|
$
|
31,321
|
|
|
$
|
33,364
|
|
|
$
|
(2,043
|
)
|
|
|
(6
|
)%
|
Servicing fees
|
|
|
24,963
|
|
|
|
24,596
|
|
|
|
367
|
|
|
|
1
|
|
Amortization of capitalized servicing
|
|
|
(18,915
|
)
|
|
|
(20,202
|
)
|
|
|
1,287
|
|
|
|
(6
|
)
|
Other mortgage banking income
|
|
|
8,028
|
|
|
|
6,874
|
|
|
|
1,154
|
|
|
|
17
|
|
Subtotal
|
|
|
45,397
|
|
|
|
44,632
|
|
|
|
765
|
|
|
|
2
|
|
MSR valuation adjustment (1)
|
|
|
(7,518
|
)
|
|
|
(31,993
|
)
|
|
|
24,475
|
|
|
|
(77
|
)
|
Net trading gains related to MSR hedging
|
|
|
8,640
|
|
|
|
57,929
|
|
|
|
(49,289
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking income
|
|
$
|
46,519
|
|
|
$
|
70,568
|
|
|
$
|
(24,049
|
)
|
|
|
(34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage originations (in millions)
|
|
$
|
1,845
|
|
|
$
|
2,030
|
|
|
$
|
(185
|
)
|
|
|
(9
|
)%
|
Average trading account securities used to hedge
MSRs (in millions)
|
|
|
34
|
|
|
|
23
|
|
|
|
11
|
|
|
|
48
|
|
Capitalized mortgage servicing rights (2)
|
|
|
189,740
|
|
|
|
179,138
|
|
|
|
10,602
|
|
|
|
6
|
|
Total mortgages serviced for others (in millions) (2)
|
|
|
16,315
|
|
|
|
15,954
|
|
|
|
361
|
|
|
|
2
|
|
MSR % of investor servicing portfolio
|
|
|
1.16
|
%
|
|
|
1.12
|
%
|
|
|
0.04
|
%
|
|
|
357
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR valuation adjustment (1)
|
|
$
|
(7,518
|
)
|
|
$
|
(31,993
|
)
|
|
$
|
24,475
|
|
|
|
(77
|
)%
|
Net trading gains related to MSR hedging
|
|
|
8,640
|
|
|
|
57,929
|
|
|
|
(49,289
|
)
|
|
|
(85
|
)
|
Net interest income related to MSR hedging
|
|
|
183
|
|
|
|
227
|
|
|
|
(44
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of MSR hedging
|
|
$
|
1,305
|
|
|
$
|
26,163
|
|
|
$
|
(24,858
|
)
|
|
|
(95
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The change in fair value for the period represents the MSR valuation adjustment, excluding amortization of capitalized servicing.
|
|
(2)
|
|
At period end.
|
The $17.8 million, or 3%, decrease in total noninterest income reflected:
|
|
|
$30.3 million, or 21%, decline in service charges on deposit accounts, reflecting lower
personal service charges due to the implementation of the amendment to Reg E and lower
underlying activity levels.
|
|
|
|
$24.0 million, or 34%, decrease in mortgage banking income. This primarily reflected a
$24.9 million decrease in MSR net hedging income and a $2.0 million, or 6%, decrease in
origination and secondary marketing income, as originations decreased 9% from the year-ago
period.
|
Partially offset by:
|
|
|
$25.9 million, or 45%, increase in other income, of which $20.2 million was associated
with SBA gains and loan fees. Also contributing to the growth were increases from the sale
of interest rate protection products and capital markets activities.
|
|
|
|
$7.3 million, or 14%, increase in electronic banking income, reflecting an increase in
debit card transaction volume and new account growth.
|
|
|
|
$6.0 million, or 17%, increase in brokerage income, primarily reflecting increased sales
of investment products.
|
|
|
|
$5.0 million, or 9%, increase in trust services income, due to a $10.3 billion increase
in total trust assets, including a $2.5 billion increase in assets under management. This
increase reflected improved market values and net growth in accounts.
|
For additional information regarding noninterest income, see the Legislative and Regulatory
section located within the Executive Overview.
27
Noninterest Expense
(This section should be read in conjunction with Significant Item 1.)
The following table reflects noninterest expense for each of the past five quarters:
Table 17 Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Personnel costs
|
|
$
|
218,570
|
|
|
$
|
219,028
|
|
|
$
|
212,184
|
|
|
$
|
208,272
|
|
|
$
|
194,875
|
|
Outside data processing and other
services
|
|
|
43,889
|
|
|
|
40,282
|
|
|
|
40,943
|
|
|
|
38,553
|
|
|
|
40,670
|
|
Net occupancy
|
|
|
26,885
|
|
|
|
28,436
|
|
|
|
26,670
|
|
|
|
26,718
|
|
|
|
25,388
|
|
Deposit and other insurance expense
|
|
|
23,823
|
|
|
|
17,896
|
|
|
|
23,320
|
|
|
|
23,406
|
|
|
|
26,067
|
|
Professional services
|
|
|
20,080
|
|
|
|
13,465
|
|
|
|
21,021
|
|
|
|
20,672
|
|
|
|
24,388
|
|
Equipment
|
|
|
21,921
|
|
|
|
22,477
|
|
|
|
22,060
|
|
|
|
21,651
|
|
|
|
21,585
|
|
Marketing
|
|
|
20,102
|
|
|
|
16,895
|
|
|
|
16,168
|
|
|
|
20,921
|
|
|
|
17,682
|
|
Amortization of intangibles
|
|
|
13,386
|
|
|
|
13,370
|
|
|
|
15,046
|
|
|
|
15,145
|
|
|
|
15,141
|
|
OREO and foreclosure expense
|
|
|
4,398
|
|
|
|
3,931
|
|
|
|
10,502
|
|
|
|
12,047
|
|
|
|
4,970
|
|
Automobile operating lease expense
|
|
|
5,434
|
|
|
|
6,836
|
|
|
|
8,142
|
|
|
|
9,159
|
|
|
|
9,667
|
|
Other expense
|
|
|
29,921
|
|
|
|
48,083
|
|
|
|
38,537
|
|
|
|
30,765
|
|
|
|
33,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$
|
428,409
|
|
|
$
|
430,699
|
|
|
$
|
434,593
|
|
|
$
|
427,309
|
|
|
$
|
413,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees (full-time equivalent), at period-end
|
|
|
11,457
|
|
|
|
11,319
|
|
|
|
11,341
|
|
|
|
11,279
|
|
|
|
11,117
|
|
2011 Second Quarter versus 2010 Second Quarter
Noninterest expense increased $14.6 million, or 4%, from the year-ago quarter.
Table 18 Noninterest Expense 2011 Second Quarter vs. 2010 Second Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
Change
|
|
(dollar amounts in thousands)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Personnel costs
|
|
$
|
218,570
|
|
|
$
|
194,875
|
|
|
$
|
23,695
|
|
|
|
12
|
%
|
Outside data processing and other
services
|
|
|
43,889
|
|
|
|
40,670
|
|
|
|
3,219
|
|
|
|
8
|
|
Net occupancy
|
|
|
26,885
|
|
|
|
25,388
|
|
|
|
1,497
|
|
|
|
6
|
|
Deposit and other insurance expense
|
|
|
23,823
|
|
|
|
26,067
|
|
|
|
(2,244
|
)
|
|
|
(9
|
)
|
Professional services
|
|
|
20,080
|
|
|
|
24,388
|
|
|
|
(4,308
|
)
|
|
|
(18
|
)
|
Equipment
|
|
|
21,921
|
|
|
|
21,585
|
|
|
|
336
|
|
|
|
2
|
|
Marketing
|
|
|
20,102
|
|
|
|
17,682
|
|
|
|
2,420
|
|
|
|
14
|
|
Amortization of intangibles
|
|
|
13,386
|
|
|
|
15,141
|
|
|
|
(1,755
|
)
|
|
|
(12
|
)
|
OREO and foreclosure expense
|
|
|
4,398
|
|
|
|
4,970
|
|
|
|
(572
|
)
|
|
|
(12
|
)
|
Automobile operating lease expense
|
|
|
5,434
|
|
|
|
9,667
|
|
|
|
(4,233
|
)
|
|
|
(44
|
)
|
Other expense
|
|
|
29,921
|
|
|
|
33,377
|
|
|
|
(3,456
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$
|
428,409
|
|
|
$
|
413,810
|
|
|
$
|
14,599
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees (full-time equivalent), at
period-end
|
|
|
11,457
|
|
|
|
11,117
|
|
|
|
340
|
|
|
|
3
|
%
|
The $14.6 million, or 4%, increase in total noninterest expense from the year-ago quarter
reflected:
|
|
|
$23.7 million, or 12%, increase in personnel costs, primarily reflecting a 3% increase
in full-time equivalent staff in support of strategic initiatives, as well as higher
benefit related expenses, including costs associated with the reinstatement of our 401(k)
plan matching contribution in May 2010.
|
|
|
|
$3.2 million, or 8%, increase in outside data processing and other service, reflecting
higher costs associated with the implementation of strategic initiatives.
|
|
|
|
$2.4 million, or 14%, increase in marketing expense, reflecting higher advertising
costs.
|
28
Partially offset by:
|
|
|
$4.3 million, or 18%, decrease in professional services, reflecting lower legal costs,
as collection activities declined, and consulting expenses.
|
|
|
|
$4.2 million, or 44%, decline in automobile operating lease expense as that portfolio
continued to run-off.
|
|
|
|
$3.5 million, or 10%, decrease in other expense, primarily reflecting a decline in
expenses related to representations and warranties losses on mortgage loans sold.
|
2011 Second Quarter versus 2011 First Quarter
Noninterest expense decreased $2.3 million, or 1%, from the prior quarter.
Table 19 Noninterest Expense 2011 Second Quarter vs. 2011 First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
Change
|
|
(dollar amounts in thousands)
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
Amount
|
|
|
Percent
|
|
Personnel costs
|
|
$
|
218,570
|
|
|
$
|
219,028
|
|
|
$
|
(458
|
)
|
|
|
|
%
|
Outside data processing and other
services
|
|
|
43,889
|
|
|
|
40,282
|
|
|
|
3,607
|
|
|
|
9
|
|
Net occupancy
|
|
|
26,885
|
|
|
|
28,436
|
|
|
|
(1,551
|
)
|
|
|
(5
|
)
|
Deposit and other insurance expense
|
|
|
23,823
|
|
|
|
17,896
|
|
|
|
5,927
|
|
|
|
33
|
|
Professional services
|
|
|
20,080
|
|
|
|
13,465
|
|
|
|
6,615
|
|
|
|
49
|
|
Equipment
|
|
|
21,921
|
|
|
|
22,477
|
|
|
|
(556
|
)
|
|
|
(2
|
)
|
Marketing
|
|
|
20,102
|
|
|
|
16,895
|
|
|
|
3,207
|
|
|
|
19
|
|
Amortization of intangibles
|
|
|
13,386
|
|
|
|
13,370
|
|
|
|
16
|
|
|
|
|
|
OREO and foreclosure expense
|
|
|
4,398
|
|
|
|
3,931
|
|
|
|
467
|
|
|
|
12
|
|
Automobile operating lease expense
|
|
|
5,434
|
|
|
|
6,836
|
|
|
|
(1,402
|
)
|
|
|
(21
|
)
|
Other expense
|
|
|
29,921
|
|
|
|
48,083
|
|
|
|
(18,162
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$
|
428,409
|
|
|
$
|
430,699
|
|
|
$
|
(2,290
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees (full-time equivalent), at
period-end
|
|
|
11,457
|
|
|
|
11,319
|
|
|
|
138
|
|
|
|
1
|
%
|
The $2.3 million, or 1%, decrease in total noninterest expense from the prior quarter
reflected:
|
|
|
$18.2 million, or 38%, decrease in other expense, primarily reflecting the prior
quarters $17.0 million addition to litigation reserves.
|
Partially offset by:
|
|
|
$6.6 million, or 49%, increase in professional services, reflecting higher costs
supporting regulatory and litigation efforts.
|
|
|
|
$5.9 million, or 33%, temporary increase in deposit and other insurance expenses.
|
|
|
|
$3.6 million, or 9%, increase in outside data processing and other services, reflecting
higher appraisal costs and system upgrade expenses.
|
|
|
|
$3.2 million, or 19%, increase in marketing expense, reflecting higher advertising
costs.
|
29
2011 First Six Months versus 2010 First Six Months
Noninterest expense for the first six-month period of 2011 increased $47.2 million, or 6%,
from the comparable year-ago period.
Table 20 Noninterest Expense 2011 First Six Months vs. 2010 First Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
(dollar amounts in thousands)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
Personnel costs
|
|
$
|
437,598
|
|
|
$
|
378,517
|
|
|
$
|
59,081
|
|
|
|
16
|
%
|
Outside data processing and other services
|
|
|
84,171
|
|
|
|
79,752
|
|
|
|
4,419
|
|
|
|
6
|
|
Net occupancy
|
|
|
55,321
|
|
|
|
54,474
|
|
|
|
847
|
|
|
|
2
|
|
Deposit and other insurance expense
|
|
|
41,719
|
|
|
|
50,822
|
|
|
|
(9,103
|
)
|
|
|
(18
|
)
|
Professional services
|
|
|
33,545
|
|
|
|
47,085
|
|
|
|
(13,540
|
)
|
|
|
(29
|
)
|
Equipment
|
|
|
44,398
|
|
|
|
42,209
|
|
|
|
2,189
|
|
|
|
5
|
|
Marketing
|
|
|
36,997
|
|
|
|
28,835
|
|
|
|
8,162
|
|
|
|
28
|
|
Amortization of intangibles
|
|
|
26,756
|
|
|
|
30,287
|
|
|
|
(3,531
|
)
|
|
|
(12
|
)
|
OREO and foreclosure expense
|
|
|
8,329
|
|
|
|
16,500
|
|
|
|
(8,171
|
)
|
|
|
(50
|
)
|
Automobile operating lease expense
|
|
|
12,270
|
|
|
|
19,733
|
|
|
|
(7,463
|
)
|
|
|
(38
|
)
|
Other expense
|
|
|
78,004
|
|
|
|
63,689
|
|
|
|
14,315
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$
|
859,108
|
|
|
$
|
811,903
|
|
|
$
|
47,205
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $47.2 million, or 6%, increase in total noninterest expense reflected:
|
|
|
$59.1 million, or 16%, increase in personnel costs, primarily reflecting an increase in
full-time equivalent staff in support of strategic initiatives, as well as higher benefit
related expenses, including the reinstatement of our 401(k) plan matching contribution in
May of 2010.
|
|
|
|
$14.3 million, or 22%, increase in other expense, primarily reflecting the 2011 first
quarter $17.0 million addition to litigation reserves.
|
|
|
|
$8.2 million, or 28%, increase in marketing expense, reflecting higher advertising
costs.
|
Partially offset by:
|
|
|
$13.5 million, or 29%, decrease in professional services, reflecting lower legal costs,
as collection activities declined, and consulting expenses.
|
|
|
|
$8.2 million, or 50%, decline in OREO and foreclosure expenses as OREO balances declined
72% in the current period.
|
|
|
|
$7.5 million, or 38%, decline in automobile operating lease expense as that portfolio
continued to run-off having exited that business in 2008.
|
Provision for Income Taxes
(This section should be read in conjunction with Significant Item 2.)
The provision for income taxes in the 2011 second quarter was $49.0 million. This compared
with a provision for income taxes of $34.7 million in the 2011 first quarter and a provision for
income taxes of $13.3 million in the 2010 second quarter. All three quarters include the benefits
from tax-exempt income, tax-advantaged investments, and general business credits. At June 30,
2011, we had a net deferred tax asset of $432.7 million. Based on both positive and negative
evidence and our level of forecasted future taxable income, there was no impairment to the deferred
tax asset at June 30, 2011. The total disallowed deferred tax asset for regulatory capital
purposes decreased to $48.2 million at June 30, 2011, from $89.9 million at March 31, 2011.
The IRS completed audits of our consolidated federal income tax returns for tax years through
2007. The IRS, various states, and other jurisdictions remain open to examination, including
Kentucky, Indiana, Michigan, Pennsylvania, West Virginia and Illinois. The IRS and the
Commonwealth of Kentucky have proposed adjustments to our previously filed tax returns. We believe
that our tax positions related to such proposed adjustments are correct and supported by applicable
statutes, regulations, and judicial authority, and intend to vigorously defend them. It is
possible the ultimate resolution of the proposed adjustments, if unfavorable, may be material to
the results of operations in the period it occurs. However, although no assurance can be given, we
believe the resolution of these examinations will not, individually or in the aggregate, have a
material adverse impact on our consolidated financial position.
30
RISK MANAGEMENT AND CAPITAL
Risk awareness, identification and assessment, reporting, and active management are key
elements in overall risk management. We manage risk to an aggregate moderate-to-low risk profile
strategy through a control framework and by monitoring and responding to potential risks. We
believe that our primary risk exposures are credit, market, liquidity, operational, and compliance
risk. More information on risk can be found in the Risk Factors section included in Item 1A of our
2010 Form 10-K and subsequent filings with the SEC. Additionally, the MD&A included in our 2010
Form 10-K should be read in conjunction with this MD&A as this discussion provides only material
updates to the 2010 Form 10-K. Our definition, philosophy, and approach to risk management have
not materially changed from the discussion presented in the 2010 Form 10-K.
Credit Risk
Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed
upon terms of the financial obligation. The majority of our credit risk is associated with lending
activities, as the acceptance and management of credit risk is central to profitable lending. We
also have significant credit risk associated with our available-for-sale and other investment
securities portfolio
(see Investment Securities Portfolio discussion)
. While there is credit risk
associated with derivative activity, we believe this exposure is minimal. The significant change
in the economic conditions and the resulting changes in borrower behavior over the past several
years resulted in our focusing significant resources to the identification, monitoring, and
managing of our credit risk. In addition to the traditional credit risk mitigation strategies of
credit policies and processes, market risk management activities, and portfolio diversification, we
added more quantitative measurement capabilities utilizing external data sources, enhanced use of
modeling technology, and internal stress testing processes. The continued expansion of our
portfolio management resources demonstrates our commitment to maintaining an aggregate
moderate-to-low risk profile.
Loan and Lease Credit Exposure Mix
At June 30, 2011, our loans and leases totaled $39.1 billion, representing a $1.0 billion, or
3%, increase compared to $38.1 billion at December 31, 2010, primarily reflecting growth in the
consumer loan portfolio. The automobile portfolio represented 56% of the total consumer portfolio
growth, reflecting an increase in automobile sales across the industry, as well as our expansion
into the New England market. The home equity and residential mortgage portfolios both increased
modestly compared to December 31, 2010. All of the growth within the consumer portfolio was
consistent with our focus on high quality borrowers. Total commercial loans were little changed as
the growth in the C&I portfolio was offset by a decline in the CRE portfolio.
At June 30, 2011, commercial loans and leases totaled $19.7 billion, and represented 50% of
our total credit exposure. Our commercial portfolio is diversified along product type, size, and
geography within our footprint and is comprised of the following (
see Commercial Credit
discussion)
:
C&I
C&I loans and leases are made to commercial customers for use in normal business
operations to finance working capital needs, equipment purchases, or other projects. The majority
of these borrowers are customers doing business within our geographic regions. C&I loans and
leases are generally underwritten individually and secured with the assets of the company and/or
the personal guarantee of the business owners. The financing of owner occupied facilities is
considered a C&I loan even though there is improved real estate as collateral. This treatment is a
function of the credit decision process, which focuses on cash flow from operations of the business
to repay the debt. The operation, sale, rental, or refinancing of the real estate is not
considered the primary repayment source for these types of loans. As we look to grow our C&I
portfolio, we have further developed our ABL capabilities by adding experienced ABL professionals
to take advantage of market opportunities resulting in better leveraging of the manufacturing base
in our primary markets. Also, our Equipment Finance area is targeting larger equipment financings
in the manufacturing sector in addition to our core products. We also expanded our large corporate
banking group with sufficient resources to ensure we appropriately recognize and manage the risks
associated with these types of lending.
CRE
CRE loans consist of loans for income-producing real estate properties, real estate
investment trusts, and real estate developers. We mitigate our risk on these loans by requiring
collateral values that exceed the loan amount and underwriting the loan with projected cash flow in
excess of the debt service requirement. These loans are made to finance properties such as
apartment buildings, office and industrial buildings, and retail shopping centers, and are repaid
through cash flows related to the operation, sale, or refinance of the property.
Construction CRE
Construction CRE loans are loans to individuals, companies, or developers
used for the construction of a commercial or residential property for which repayment will be
generated by the sale or permanent financing of the property. Our construction CRE portfolio
primarily consists of retail, residential (land, single family, and condominiums), office, and
warehouse product types. Generally, these loans are for construction projects that have been
presold or preleased, or have secured permanent financing, as well as loans to real estate
companies with significant equity invested in each project. These loans are underwritten and
managed by a specialized real estate lending group that actively monitors the construction phase
and manages the loan disbursements according to the predetermined construction schedule.
31
Total consumer loans and leases were $19.4 billion at June 30, 2011, and represented 50% of
our total loan and lease credit exposure. The consumer portfolio was primarily diversified among
home equity loans and lines-of-credit, residential mortgages, and automobile loans and leases
(see
Consumer Credit discussion)
.
Automobile
Automobile loans and leases are primarily comprised of loans made through
automotive dealerships and include exposure in selected states outside of our primary banking
markets. No state outside of our primary banking markets represented more than 5% of our total
automobile portfolio at June 30, 2011. Our automobile lease portfolio represents an immaterial
portion of the total portfolio as we exited the automobile leasing business during the 2008 fourth
quarter.
Home equity
Home equity lending includes both home equity loans and lines-of-credit. This
type of lending, which is secured by a first-lien or second-lien on the borrowers residence,
allows customers to borrow against the equity in their home. Given the current low interest rate
environment, many borrowers have utilized the line-of-credit home equity product as the primary
source of financing their home. As a result, the proportion of the home equity portfolio secured
by a first-lien has increased significantly over the past three years, positively impacting the
portfolios performance, and providing a positive basis regarding the expected future performance
of this portfolio. Real estate market values at the time of origination directly affect the amount
of credit extended and, in the event of default, subsequent changes in these values impact the
severity of losses. We actively manage the extension of credit and the amount of credit extended
through a combination of criteria including debt-to-income policies and LTV policy limits.
Residential mortgage
Residential mortgage loans represent loans to consumers for the
purchase or refinance of a residence. These loans are generally financed over a 15-year to 30-year
term, and in most cases, are extended to borrowers to finance their primary residence. Generally,
our practice is to sell a significant portion of our fixed-rate originations in the secondary
market. As such, the majority of the loans in our portfolio are ARMs. These ARMs primarily
consist of a fixed-rate of interest for the first 3 to 5 years, and then adjust annually. These
loans comprised approximately 54% of our total residential mortgage loan portfolio at June 30,
2011. We are subject to repurchase risk associated with residential mortgage loans sold in the
secondary market. This activity has increased recently reflecting the overall market conditions
and GSE activity and an appropriate level of allowance has been established to address the
repurchase risk inherent in the portfolio
(refer to the Operational Risk section for additional
discussion).
Other consumer
This portfolio primarily consists of consumer loans not secured by real
estate or automobiles, including personal unsecured loans.
Table 21 Loan and Lease Portfolio Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in millions)
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
Commercial:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
13,544
|
|
|
|
34
|
%
|
|
$
|
13,299
|
|
|
|
35
|
%
|
|
$
|
13,063
|
|
|
|
34
|
%
|
|
$
|
12,425
|
|
|
|
33
|
%
|
|
$
|
12,392
|
|
|
|
34
|
%
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
591
|
|
|
|
2
|
|
|
|
587
|
|
|
|
2
|
|
|
|
650
|
|
|
|
2
|
|
|
|
738
|
|
|
|
2
|
|
|
|
1,106
|
|
|
|
3
|
|
Commercial
|
|
|
5,573
|
|
|
|
14
|
|
|
|
5,711
|
|
|
|
15
|
|
|
|
6,001
|
|
|
|
16
|
|
|
|
6,174
|
|
|
|
16
|
|
|
|
6,078
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
6,164
|
|
|
|
16
|
|
|
|
6,298
|
|
|
|
17
|
|
|
|
6,651
|
|
|
|
18
|
|
|
|
6,912
|
|
|
|
18
|
|
|
|
7,184
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,708
|
|
|
|
50
|
|
|
|
19,597
|
|
|
|
52
|
|
|
|
19,714
|
|
|
|
52
|
|
|
|
19,337
|
|
|
|
51
|
|
|
|
19,576
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
6,190
|
|
|
|
16
|
|
|
|
5,802
|
|
|
|
15
|
|
|
|
5,614
|
|
|
|
15
|
|
|
|
5,385
|
|
|
|
14
|
|
|
|
4,847
|
|
|
|
13
|
|
Home equity
|
|
|
7,952
|
|
|
|
20
|
|
|
|
7,784
|
|
|
|
20
|
|
|
|
7,713
|
|
|
|
20
|
|
|
|
7,690
|
|
|
|
21
|
|
|
|
7,510
|
|
|
|
20
|
|
Residential mortgage
|
|
|
4,751
|
|
|
|
12
|
|
|
|
4,517
|
|
|
|
12
|
|
|
|
4,500
|
|
|
|
12
|
|
|
|
4,511
|
|
|
|
12
|
|
|
|
4,354
|
|
|
|
12
|
|
Other consumer
|
|
|
525
|
|
|
|
2
|
|
|
|
546
|
|
|
|
1
|
|
|
|
566
|
|
|
|
1
|
|
|
|
578
|
|
|
|
2
|
|
|
|
683
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
19,418
|
|
|
|
50
|
|
|
|
18,649
|
|
|
|
48
|
|
|
|
18,393
|
|
|
|
48
|
|
|
|
18,164
|
|
|
|
49
|
|
|
|
17,394
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
39,126
|
|
|
|
100
|
%
|
|
$
|
38,246
|
|
|
|
100
|
%
|
|
$
|
38,107
|
|
|
|
100
|
%
|
|
$
|
37,501
|
|
|
|
100
|
%
|
|
$
|
36,970
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
There were no commercial loans outstanding that would be considered a concentration of lending to a particular industry or group of industries.
|
32
The table below provides our total loan and lease portfolio segregated by the type of
collateral securing the loan or lease:
Table 22 Loan and Lease Portfolio by Collateral Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in millions)
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
Secured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate commercial
|
|
$
|
9,781
|
|
|
|
25
|
%
|
|
$
|
9,931
|
|
|
|
26
|
%
|
|
$
|
10,389
|
|
|
|
27
|
%
|
|
$
|
10,516
|
|
|
|
28
|
%
|
|
$
|
10,698
|
|
|
|
29
|
%
|
Real estate consumer
|
|
|
12,703
|
|
|
|
32
|
|
|
|
12,300
|
|
|
|
32
|
|
|
|
12,214
|
|
|
|
32
|
|
|
|
12,201
|
|
|
|
33
|
|
|
|
11,968
|
|
|
|
32
|
|
Vehicles
|
|
|
7,594
|
|
|
|
19
|
|
|
|
7,333
|
|
|
|
19
|
|
|
|
7,134
|
|
|
|
19
|
|
|
|
6,652
|
|
|
|
18
|
|
|
|
6,054
|
|
|
|
16
|
|
Receivables/Inventory
|
|
|
4,171
|
|
|
|
11
|
|
|
|
3,819
|
|
|
|
10
|
|
|
|
3,763
|
|
|
|
10
|
|
|
|
3,524
|
|
|
|
9
|
|
|
|
3,511
|
|
|
|
9
|
|
Machinery/Equipment
|
|
|
1,784
|
|
|
|
5
|
|
|
|
1,787
|
|
|
|
5
|
|
|
|
1,766
|
|
|
|
5
|
|
|
|
1,763
|
|
|
|
5
|
|
|
|
1,812
|
|
|
|
5
|
|
Securities/Deposits
|
|
|
802
|
|
|
|
2
|
|
|
|
778
|
|
|
|
2
|
|
|
|
734
|
|
|
|
2
|
|
|
|
730
|
|
|
|
2
|
|
|
|
780
|
|
|
|
2
|
|
Other
|
|
|
1,095
|
|
|
|
3
|
|
|
|
1,139
|
|
|
|
3
|
|
|
|
990
|
|
|
|
2
|
|
|
|
1,097
|
|
|
|
2
|
|
|
|
1,120
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured loans and leases
|
|
|
37,930
|
|
|
|
97
|
|
|
|
37,087
|
|
|
|
97
|
|
|
|
36,990
|
|
|
|
97
|
|
|
|
36,483
|
|
|
|
97
|
|
|
|
35,943
|
|
|
|
97
|
|
Unsecured loans and leases
|
|
|
1,196
|
|
|
|
3
|
|
|
|
1,159
|
|
|
|
3
|
|
|
|
1,117
|
|
|
|
3
|
|
|
|
1,018
|
|
|
|
3
|
|
|
|
1,027
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
39,126
|
|
|
|
100
|
%
|
|
$
|
38,246
|
|
|
|
100
|
%
|
|
$
|
38,107
|
|
|
|
100
|
%
|
|
$
|
37,501
|
|
|
|
100
|
%
|
|
$
|
36,970
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Credit
In commercial lending, on-going credit management is dependent on the type and nature of the
loan. We monitor all significant exposures on an on-going basis. All commercial credit extensions
are assigned internal risk ratings reflecting the borrowers probability-of-default and
loss-given-default (severity of loss). This two-dimensional rating methodology provides granularity
in the portfolio management process. The probability-of-default is rated and applied at the
borrower level. The loss-given-default is rated and applied based on the specific type of credit
extension and the quality and lien position associated with the underlying collateral. The
internal risk ratings are assessed at origination and updated at each periodic monitoring event.
There is also extensive macro portfolio management analysis on an on-going basis. As an example,
the retail properties class of the CRE portfolio and manufacturing loans within the C&I portfolio
have each received more frequent evaluation at the individual loan level given the weak environment
and our portfolio composition. We continually review and adjust our risk-rating criteria based on
actual experience, which provides us with the current risk level in the portfolio and is the basis
for determining an appropriate allowance amount for this portfolio.
Our Credit Review group performs testing to provide an independent review and assessment of
the quality and / or risk of new loan originations. This group is part of our Risk Management
area, and conducts portfolio reviews on a risk-based cycle to evaluate individual loans, validate
risk ratings, as well as test the consistency of credit processes. Similarly, to provide
consistent oversight, a centralized portfolio management team monitors and reports on the
performance of small business loans, which are included within the commercial loan portfolio.
All loans categorized as Classified
(see Note 3 of Notes to Unaudited Condensed Consolidated
Financial Statements)
are managed by our SAD. The SAD is a specialized credit group that handles
the day-to-day management of workouts, commercial recoveries, and problem loan sales. Its
responsibilities include developing and implementing action plans, assessing risk ratings, and
determining the adequacy of the allowance, the accrual status, and the ultimate collectability of
the Classified loan portfolio.
Our commercial portfolio is diversified by customer size, as well as geographically throughout
our footprint. No outstanding commercial loans and leases comprised an industry or geographic
concentration of lending. Certain segments of our commercial portfolio are discussed in further
detail below.
C&I PORTFOLIO
We manage the risks inherent in this portfolio through origination policies, concentration
limits, on-going loan level reviews and portfolio level reviews, recourse requirements, and
continuous portfolio risk management activities. Our origination policies for this portfolio
include loan product-type specific policies such as LTV and debt service coverage ratios, as
applicable.
While C&I borrowers have been challenged by the weak economy, problem loans have trended
downward, reflecting a combination of proactive risk identification as well as some relative
improvement in the economic conditions. Nevertheless, some borrowers may no longer have sufficient
capital to withstand the extended stress. As a result, these borrowers may not be able to comply
with the original terms of their credit agreements. We continue to focus attention on the
portfolio management process to proactively identify borrowers that may be facing financial
difficulty and to assess all potential solutions. The impact of the economic environment is
further evidenced by the level of line-of-credit activity, as borrowers continued to maintain
relatively low utilization percentages.
33
As shown in the following table, C&I loans and leases totaled $13.5 billion at June 30, 2011:
Table 23 Commercial and Industrial Loans and Leases by Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
Commitments
|
|
|
Loans Outstanding
|
|
(dollar amounts in millions)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
4,259
|
|
|
|
21
|
%
|
|
$
|
3,870
|
|
|
|
29
|
%
|
Other commercial and industrial
|
|
|
16,288
|
|
|
|
79
|
|
|
|
9,674
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,547
|
|
|
|
100
|
%
|
|
$
|
13,544
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference in the composition between the commitments and loans and leases
outstanding in the other commercial and industrial class results from a significant amount of
working capital lines-of-credit and businesses have reduced these borrowings. The funding
percentage associated with the lines-of-credit has been a significant indicator of credit quality.
Generally, borrowers that fully utilize their line-of-credit consistently, over time, have a higher
risk profile. This represents one of many credit risk factors we utilize in assessing the credit
risk portfolio of individual borrowers and the overall portfolio.
CRE PORTFOLIO
We manage the risks inherent in this portfolio specific to CRE lending, focusing on the
quality of the developer, and the specifics associated with each project. Generally, we: (1)
limit our loans to 80% of the appraised value of the commercial real estate, (2) require net
operating cash flows to be 125% of required interest and principal payments, and (3) if the
commercial real estate is nonowner occupied, require that at least 50% of the space of the project
be preleased.
Each CRE loan is classified as either core or noncore. We separated the CRE portfolio into
these categories in order to provide more clarity around our portfolio management strategies and to
provide an additional level of transparency. We believe segregating the noncore CRE from core CRE
improves our ability to understand the nature, performance prospects, and problem resolution
opportunities, thus allowing us to continue to deal proactively with any emerging credit issues.
A CRE loan is generally considered core when the borrower is an experienced, well-capitalized
developer in our Midwest footprint, and has either an established meaningful relationship with us
that generates an acceptable return on capital or demonstrates the prospect of becoming one. The
core CRE portfolio was $4.0 billion at June 30, 2011, representing 65% of total CRE loans. The
performance of the core portfolio met our expectations based on the consistency of the asset
quality metrics within the portfolio. Based on our extensive project level assessment process,
including forward-looking collateral valuations, we continue to believe the credit quality of the
core portfolio is stable.
A CRE loan is generally considered noncore based on the lack of a substantive relationship
outside of the loan product, with no immediate prospects for meeting the core relationship
criteria. The noncore CRE portfolio declined from $2.6 billion at December 31, 2010, to $2.2
billion at June 30, 2011, and represented 35% of total CRE loans. Of the loans in the noncore
portfolio at June 30, 2011, 62% were categorized as Pass, 95% had guarantors, 99% were secured, and
95% were located within our geographic footprint. However, it is within the noncore portfolio
where most of the credit quality challenges exist. For example, $0.3 billion, or 12%, of related
outstanding balances, are classified as NALs. SAD administered $1.0 billion, or 45%, of total
noncore CRE loans at June 30, 2011. We expect to exit the majority of noncore CRE relationships
over time through normal repayments and refinancings, possible sales should economically attractive
opportunities arise, or the reclassification to a core CRE relationship if it expands to meet the
core criteria.
34
The table below provides a segregation of the CRE portfolio as of June 30, 2011:
Table 24 Core Commercial Real Estate Loans by Property Type and Property Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions)
|
|
Ohio
|
|
|
Michigan
|
|
|
Pennsylvania
|
|
|
Indiana
|
|
|
Kentucky
|
|
|
Florida
|
|
|
Virginia
|
|
|
Other
|
|
|
Total Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail properties
|
|
$
|
488
|
|
|
$
|
91
|
|
|
$
|
74
|
|
|
$
|
93
|
|
|
$
|
8
|
|
|
$
|
39
|
|
|
$
|
30
|
|
|
$
|
344
|
|
|
$
|
1,167
|
|
|
|
19
|
%
|
Office
|
|
|
330
|
|
|
|
103
|
|
|
|
95
|
|
|
|
18
|
|
|
|
10
|
|
|
|
1
|
|
|
|
38
|
|
|
|
52
|
|
|
|
647
|
|
|
|
10
|
|
Multi family
|
|
|
269
|
|
|
|
85
|
|
|
|
60
|
|
|
|
32
|
|
|
|
30
|
|
|
|
1
|
|
|
|
26
|
|
|
|
60
|
|
|
|
563
|
|
|
|
9
|
|
Industrial and warehouse
|
|
|
237
|
|
|
|
81
|
|
|
|
21
|
|
|
|
43
|
|
|
|
3
|
|
|
|
2
|
|
|
|
6
|
|
|
|
83
|
|
|
|
476
|
|
|
|
8
|
|
Other commercial real
estate
|
|
|
725
|
|
|
|
128
|
|
|
|
38
|
|
|
|
48
|
|
|
|
|
|
|
|
20
|
|
|
|
53
|
|
|
|
120
|
|
|
|
1,132
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core portfolio
|
|
|
2,049
|
|
|
|
488
|
|
|
|
288
|
|
|
|
234
|
|
|
|
51
|
|
|
|
63
|
|
|
|
153
|
|
|
|
659
|
|
|
|
3,985
|
|
|
|
65
|
|
Total noncore portfolio
|
|
|
1,200
|
|
|
|
366
|
|
|
|
131
|
|
|
|
185
|
|
|
|
30
|
|
|
|
102
|
|
|
|
49
|
|
|
|
116
|
|
|
|
2,179
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,249
|
|
|
$
|
854
|
|
|
$
|
419
|
|
|
$
|
419
|
|
|
$
|
81
|
|
|
$
|
165
|
|
|
$
|
202
|
|
|
$
|
775
|
|
|
$
|
6,164
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality data regarding the ACL and NALs, segregated by core CRE loans and noncore
CRE loans, is presented in the following table:
Table 25 Commercial Real Estate Core vs. Noncore Portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
|
|
(dollar amounts in millions)
|
|
Balance
|
|
|
Prior NCOs
|
|
|
ACL $
|
|
|
ACL %
|
|
|
Credit Mark (1)
|
|
|
Loans
|
|
Total core
|
|
$
|
3,985
|
|
|
$
|
11
|
|
|
$
|
140
|
|
|
|
3.51
|
%
|
|
|
3.78
|
%
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncore SAD (2)
|
|
|
988
|
|
|
|
322
|
|
|
|
236
|
|
|
|
23.89
|
|
|
|
42.60
|
|
|
|
240
|
|
Noncore Other
|
|
|
1,191
|
|
|
|
13
|
|
|
|
95
|
|
|
|
7.98
|
|
|
|
8.97
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncore
|
|
|
2,179
|
|
|
|
335
|
|
|
|
331
|
|
|
|
15.19
|
|
|
|
26.49
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
$
|
6,164
|
|
|
$
|
346
|
|
|
$
|
471
|
|
|
|
7.64
|
%
|
|
|
12.55
|
%
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
Total core
|
|
$
|
4,042
|
|
|
$
|
5
|
|
|
$
|
160
|
|
|
|
3.96
|
%
|
|
|
4.08
|
%
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncore SAD (2)
|
|
|
1,400
|
|
|
|
379
|
|
|
|
329
|
|
|
|
23.50
|
|
|
|
39.80
|
|
|
|
307
|
|
Noncore Other
|
|
|
1,209
|
|
|
|
5
|
|
|
|
105
|
|
|
|
8.68
|
|
|
|
9.06
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncore
|
|
|
2,609
|
|
|
|
384
|
|
|
|
434
|
|
|
|
16.63
|
|
|
|
27.33
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
$
|
6,651
|
|
|
$
|
389
|
|
|
$
|
594
|
|
|
|
8.93
|
%
|
|
|
13.96
|
%
|
|
$
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as (Prior NCOs + ACL $) / (Ending Balance + Prior NCOs).
|
|
(2)
|
|
Noncore loans managed by SAD, the area responsible for managing loans and relationships designated as Classified Loans.
|
As shown in the above table, the ending balance of the CRE portfolio at June 30, 2011,
declined $0.5 billion, or 7%, compared with December 31, 2010. Of this decline, 85% occurred in
the noncore segment of the portfolio administered by the SAD, and was a result of payoffs and NCOs
as we actively focus on the noncore portfolio to reduce our overall CRE exposure. This reduction
demonstrates our continued commitment to maintaining an aggregate moderate-to-low risk profile. We
anticipate further noncore CRE declines in future periods based on our strategy to reduce our
overall CRE exposure. The reduction in the core segment is a result of limited origination
activity reflecting our strategy to reduce our overall CRE exposure. We will continue to support
our core developer customers as appropriate, however, we do not believe that significant additional
CRE activity is appropriate given our current exposure in CRE lending and the current economic
conditions.
Also as shown above, substantial reserves for the noncore portfolio have been established. At
June 30, 2011, the ACL related to the noncore portfolio was 15.19%. The combination of the
existing ACL and prior NCOs represents the total credit actions taken on
each segment of the portfolio. From this data, we calculate a credit mark that provides a
consistent measurement of the cumulative credit actions taken against a specific portfolio segment.
We believe the combined credit activity is appropriate for each of the CRE segments.
35
Retail Properties
Our portfolio of total CRE loans secured by retail properties totaled $1.7 billion, or
approximately 4%, of total loans and leases, at June 30, 2011. Loans within this portfolio segment
declined $0.1 billion, or 5%, from $1.8 billion at December 31, 2010. Credit approval in this
portfolio segment is generally dependent on preleasing requirements, and net operating income from
the project must cover debt service by specified percentages when the loan is fully funded.
The weakness of the economic environment in our geographic regions continued to impact the
projects that secure the loans in this portfolio class. Lower occupancy rates, reduced rental
rates, and the expectation these levels will remain stressed for the foreseeable future may
adversely affect some of our borrowers ability to repay these loans. We have increased the level
of credit risk management activity on this portfolio segment, and we analyze our retail property
loans in detail by combining property type, geographic location, and other data, to assess and
manage our credit risks. We review the majority of this portfolio segment on a monthly basis.
Consumer Credit
Consumer credit approvals are based on, among other factors, the financial strength and
payment history of the borrower, type of exposure, and the transaction structure. We make
extensive use of portfolio assessment models to continuously monitor the quality of the portfolio,
which may result in changes to future origination strategies. The on-going analysis and review
process results in a determination of an appropriate allowance for our consumer loan and lease
portfolio.
AUTOMOBILE PORTFOLIO
Our strategy in the automobile portfolio continued to focus on high quality borrowers as
measured by both FICO and internal custom scores, combined with appropriate LTVs, terms, and a
reasonable level of profitability. We discontinued automobile leasing in 2008 with the portfolio
in run-off mode thereafter. Our strategy and operational capabilities allow us to appropriately
manage the origination quality across the entire portfolio, including our newer markets. Although
increased origination volume and the expansion into new markets can be associated with increased
risk levels, we believe our strategy and operational capabilities significantly mitigate these
risks.
We have continued to consistently execute our value proposition while taking advantage of
market opportunities that allow us to grow our automobile loan portfolio. The significant growth
in the portfolio over the past two years was accomplished while maintaining our consistently high
credit quality metrics. As we further execute our strategies and take advantage of these
opportunities, we are developing alternative plans to address any growth in excess of our
established portfolio concentration limits, including both securitizations and loan sales.
RESIDENTIAL-SECURED PORTFOLIOS
The properties securing our residential mortgage and home equity portfolios are primarily
located within our footprint. The continued stress on home prices has caused the performance in
these portfolios to remain weaker than historical levels. We continue to evaluate all of our
policies and processes associated with managing these portfolios to provide as much clarity as
possible.
In the 2011 first quarter, we implemented a more conservative position regarding NCOs in our
residential mortgage portfolio by accelerating the timing of charge-off recognition. In addition,
we established an immediate charge-off process regardless of the delinquency status for short sale
situations. Both of these policy changes resulted in accelerated recognition of residential
mortgage charge-offs totaling $6.8 million in the 2011 first quarter. Further, in the 2011 second
quarter, we implemented a policy change regarding the placement of loans on nonaccrual status in
both our home equity and residential mortgage portfolios. This policy change resulted in
accelerated placement of loans on nonaccrual status totaling $6.7 million in the home equity
portfolio and $8.0 million in the residential mortgage portfolio.
Table 26 Selected Home Equity and Residential Mortgage
Portfolio Data
(dollar amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
Residential Mortgage
|
|
|
|
Secured by first-lien
|
|
|
Secured by second-lien
|
|
|
|
|
|
|
06/30/11
|
|
|
12/31/10
|
|
|
06/30/11
|
|
|
12/31/10
|
|
|
06/30/11
|
|
|
12/31/10
|
|
Ending balance
|
|
$
|
3,398
|
|
|
$
|
3,041
|
|
|
$
|
4,554
|
|
|
$
|
4,672
|
|
|
$
|
4,751
|
|
|
$
|
4,500
|
|
Portfolio weighted average LTV
ratio
(1)
|
|
|
70
|
%
|
|
|
70
|
%
|
|
|
80
|
%
|
|
|
80
|
%
|
|
|
78
|
%
|
|
|
77
|
%
|
Portfolio weighted average FICO
score
(2)
|
|
|
748
|
|
|
|
745
|
|
|
|
734
|
|
|
|
733
|
|
|
|
729
|
|
|
|
721
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
Residential Mortgage (3)
|
|
|
|
Secured by first-lien
|
|
|
Secured by second-lien
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Originations
|
|
$
|
918
|
|
|
$
|
552
|
|
|
$
|
435
|
|
|
$
|
329
|
|
|
$
|
751
|
|
|
$
|
694
|
|
Origination weighted average LTV
ratio
(1)
|
|
|
71
|
%
|
|
|
69
|
%
|
|
|
82
|
%
|
|
|
78
|
%
|
|
|
84
|
%
|
|
|
80
|
%
|
Origination weighted average FICO
score
(2)
|
|
|
768
|
|
|
|
765
|
|
|
|
758
|
|
|
|
755
|
|
|
|
757
|
|
|
|
761
|
|
|
|
|
(1)
|
|
The LTV ratios for home equity loans and home equity lines-of-credit are cumulative and reflect the balance of any senior loans.
LTV ratios reflect collateral values at the time of loan origination.
|
|
(2)
|
|
Portfolio weighted average FICO scores reflect currently updated customer credit scores whereas origination weighted average FICO
scores reflect the customer credit scores at the time of loan origination.
|
|
(3)
|
|
Represents only owned-portfolio originations.
|
Home Equity Portfolio
Our home equity portfolio (loans and lines-of-credit) consists of both first-lien and
second-lien mortgage loans with underwriting criteria based on minimum credit scores,
debt-to-income ratios, and LTV ratios. We offer closed-end home equity loans which are generally
fixed-rate with principal and interest payments, and variable-rate interest-only home equity
lines-of-credit which do not require payment of principal during the 10-year revolving period of
the line-of-credit.
At June 30, 2011, approximately 43% of our home equity portfolio was secured by first-lien
mortgages. The credit risk profile is substantially reduced when we hold a first-lien position.
During the first six-month period of 2011, more than 65% of our home equity portfolio originations
were secured by a first-lien mortgage. We focus on high quality borrowers primarily located within
our footprint. The majority of our home equity line-of-credit borrowers consistently pay more than
the required interest-only amount. Additionally, since we focus on developing complete
relationships with our customers, many of our home equity borrowers are utilizing other products
and services.
We believe we have underwritten credit conservatively within this portfolio. We have not
originated home equity loans or lines-of-credit with an LTV at origination greater than 100%,
except for infrequent situations with high quality borrowers. However, continued declines in
housing prices have decreased the value of the collateral for this portfolio and have caused a
portion of the portfolio to have an LTV greater than 100%.
For certain home equity loans and lines-of-credit, we may utilize an AVM or an other
model-driven value estimate during the credit underwriting process. We utilize a series of credit
parameters to determine the appropriate valuation methodology. While we believe an AVM estimate is
an appropriate valuation source for a portion of our home equity lending activities, we continue to
re-evaluate all of our policies on an on-going basis, specifically related to the December 2010
FFIEC guidelines regarding property valuation. The intent of these guidelines is to ensure
complete independence in the requesting and review of real estate valuations associated with loan
decisions. We are committed to appropriate valuations for all of our real estate lending, and do
not anticipate significant impacts to our loan decision process as a result of these guidelines.
We update values as appropriate, and in compliance with applicable regulations, for loans
identified as higher risk. Loans are identified as higher risk based on performance indicators and
the updated values are utilized to facilitate our portfolio management processes, as well as our
workout and loss mitigation functions.
We continue to make origination policy adjustments based on our assessment of an appropriate
risk profile, as well as industry actions. In addition to origination policy adjustments, we take
actions, as necessary, to manage the risk profile of this portfolio.
Residential Mortgage Portfolio
We focus on higher quality borrowers and underwrite all applications centrally, often through
the use of an automated underwriting system. We do not originate residential mortgages that allow
negative amortization or allow the borrower multiple payment options.
All residential mortgages are originated based on a completed full appraisal during the credit
underwriting process. We update values on a regular basis in compliance with applicable
regulations to facilitate our portfolio management, as well as our workout and loss mitigation
functions.
A majority of the loans in our portfolio have adjustable rates. These ARMs comprised
approximately 54% of our total residential mortgage loan portfolio at June 30, 2011. At June 30,
2011, ARM loans that were expected to have rates reset totaled $1.6 billion through 2014. These
loans scheduled to reset are primarily associated with loans originated subsequent to 2007, and as
such, are not subject to the most significant declines in value. Given the quality of our
borrowers and the relatively low current interest rates, we believe that we have a relatively
limited exposure to ARM reset risk. Nonetheless, we have taken actions to mitigate our risk
exposure. We initiate borrower contact at least six months prior to the interest rate resetting,
and have been successful in converting many ARMs to fixed-rate loans through this process. Our ARM
portfolio has performed substantially better than the fixed-rate portfolio in part due to this
proactive management process. Additionally, when borrowers are experiencing payment difficulties,
loans may be reunderwritten based on the borrowers ability to repay the loan.
37
Several government actions were enacted that impacted the residential mortgage portfolio,
including various refinance programs which positively affected the availability of credit for the
industry. We are utilizing these programs to enhance our existing strategy of working closely with
our customers.
Credit Quality
We believe the most meaningful way to assess overall credit quality performance is through an
analysis of credit quality performance ratios. This approach forms the basis of most of the
discussion in the sections immediately following: NPAs and NALs, TDRs, ACL, and NCOs. In addition,
we utilize delinquency rates, risk distribution and migration patterns, and product segmentation in
the analysis of our credit quality performance.
Credit quality performance in the 2011 second quarter reflected continued improvement in the
loan portfolio relating to NCO activity, as well as some improvement in delinquency trends. Key
credit quality metrics also showed improvement, including a 5% decline in NPAs and an 11% decline
in the level of Criticized commercial loans compared to the prior quarter. The reduction in NPAs
was achieved despite a more conservative policy on residential mortgage and home equity loans
implemented during the current quarter. New NPA inflows increased in the current quarter compared
to the prior quarter as a result of the more conservative policy. We anticipate lower inflows in
future quarters.
Our ACL declined $63.3 million to $1,112.2 million, or 2.84% of period-end loans and leases at
June 30, 2011, from $1,175.4 million, or 3.07% at March 31, 2011. This decline reflected a
reduction to the commercial-related ACL as a result of an overall reduction in the level of
commercial Criticized loans and NCOs on loans with specific reserves, partially offset by a slight
increase in the consumer-related ACL as a result of consumer loan growth.
NPAs, NALs, AND TDRs
NPAs and NALs
(This section should be read in conjunction with the Franklin-related Impacts section.)
NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2)
impaired loans held for sale, (3) OREO properties, and (4) other NPAs. Any loan in our portfolio
may be placed on nonaccrual status prior to the policies described below when collection of
principal or interest is in doubt.
C&I and CRE loans are placed on nonaccrual status at 90-days past due. With the exception of
residential mortgage loans guaranteed by government organizations which continue to accrue
interest, residential mortgage loans are placed on nonaccrual status at 150-days past due.
First-lien and second-lien home equity loans are placed on nonaccrual status at 150-days past due
and 120-days past due, respectively. Automobile and other consumer loans are not placed on
nonaccrual status, but are generally charged-off when the loan is 120-days past due. When interest
accruals are suspended, accrued interest income is reversed with current year accruals charged to
earnings and prior year amounts generally charged-off as a credit loss. When, in our judgment, the
borrowers ability to make required interest and principal payments has resumed and collectability
is no longer in doubt, the loan or lease is returned to
accrual status.
38
The following table reflects period-end NALs and NPAs detail for each of the last five
quarters:
Table 27 Nonaccrual Loans and Leases and Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
Nonaccrual loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
229,327
|
|
|
$
|
260,397
|
|
|
$
|
346,720
|
|
|
$
|
398,353
|
|
|
$
|
429,561
|
|
Commercial real estate
|
|
|
291,500
|
|
|
|
305,793
|
|
|
|
363,692
|
|
|
|
478,754
|
|
|
|
663,103
|
|
Residential mortgage
|
|
|
59,853
|
|
|
|
44,812
|
|
|
|
45,010
|
|
|
|
82,984
|
|
|
|
86,486
|
|
Home equity
|
|
|
33,545
|
|
|
|
25,255
|
|
|
|
22,526
|
|
|
|
21,689
|
|
|
|
22,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans and leases
|
|
|
614,225
|
|
|
|
636,257
|
|
|
|
777,948
|
|
|
|
981,780
|
|
|
|
1,201,349
|
|
Other real estate owned, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
20,803
|
|
|
|
28,668
|
|
|
|
31,649
|
|
|
|
65,775
|
|
|
|
71,937
|
|
Commercial
|
|
|
17,909
|
|
|
|
25,961
|
|
|
|
35,155
|
|
|
|
57,309
|
|
|
|
67,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other real estate owned, net
|
|
|
38,712
|
|
|
|
54,629
|
|
|
|
66,804
|
|
|
|
123,084
|
|
|
|
139,126
|
|
Impaired loans held for sale
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
652,937
|
|
|
$
|
690,886
|
|
|
$
|
844,752
|
|
|
$
|
1,104,864
|
|
|
$
|
1,582,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans as a % of total loans and leases
|
|
|
1.57
|
%
|
|
|
1.66
|
%
|
|
|
2.04
|
%
|
|
|
2.62
|
%
|
|
|
3.25
|
%
|
Nonperforming assets ratio
(2)
|
|
|
1.67
|
|
|
|
1.80
|
|
|
|
2.21
|
|
|
|
2.94
|
|
|
|
4.24
|
|
|
Nonperforming Franklin assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO
|
|
|
883
|
|
|
|
5,971
|
|
|
|
9,477
|
|
|
|
15,330
|
|
|
|
24,515
|
|
Impaired loans held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming Franklin assets
|
|
$
|
883
|
|
|
$
|
5,971
|
|
|
$
|
9,477
|
|
|
$
|
15,330
|
|
|
$
|
266,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The June 30, 2010, figure represents NALs associated with the transfer of Franklin-related residential mortgage and home equity loans to loans held for sale. Loans held for sale are carried at the lower of cost or fair
value less costs to sell.
|
|
(2)
|
|
This ratio is calculated as NPAs divided by the sum of loans and leases, impaired loans held for sale, and net other real estate.
|
The $37.9 million decline in NPAs compared with March 31, 2011, primarily reflected:
|
|
|
$31.1 million, or 12%, decline in C&I NALs, reflecting both NCO activity and problem
credit resolutions, including payoffs. The decline was associated with loans throughout
our footprint, with no specific geographic concentration. The reduction was achieved
despite an increase in the level of new NALs compared to the prior quarter level. The
increased inflows was primarily the result of one large relationship.
|
|
|
|
$14.3 million, or 5%, decline in CRE NALs, reflecting both NCO activity and problem
credit resolutions, including borrower payments and payoffs. The reduction was achieved
despite an increase in the level of new NALs compared to the prior quarter level. The
increased level of inflows was primarily centered in three relatively large relationships,
and we do not believe this increase to be an indication of a reversal of the overall
declining trend of new NALs. We continue to be focused on early recognition of risks
through our on-going portfolio management processes.
|
|
|
|
$15.9 million, or 29%, decline in OREO, primarily reflecting continued declines in both
the commercial and residential segments. We continue to be active in the on-going
management of our OREO portfolio as lower inflow levels combined with aggressive sales
activities resulted in the continued declining trend in our OREO levels.
|
Partially offset by:
|
|
|
$15.0 million, or 34%, increase in residential mortgage NALs, primarily reflecting a
change to our nonaccrual policy
(see Consumer Credit section).
|
|
|
|
$8.3 million, or 33%, increase in home equity NALs, primarily reflecting a change to our
nonaccrual policy
(see Consumer
Credit section).
|
39
As part of our loss mitigation process, we reunderwrite, modify, or restructure loans when
borrowers are experiencing payment difficulties, based on the borrowers ability to repay the loan.
Compared with December 31, 2010, NPAs decreased $191.8 million, or 23%, primarily reflecting:
|
|
|
$117.4 million, or 34%, decline in C&I NALs, reflecting both NCO activity and problem
credit resolutions, including payoffs. The decline was associated with loans throughout
our footprint, with no specific geographic concentration. From an industry perspective,
improvement in the manufacturing-related segment accounted for a significant portion of the
decrease.
|
|
|
|
$72.2 million, or 20%, decline in CRE NALs, reflecting both NCO activity and problem
credit resolutions, including borrower payments and payoffs. This decline was a direct
result of our on-going proactive management of these credits by our SAD.
|
|
|
|
$28.1 million, or 42%, decrease in OREO properties, reflecting lower inflow levels
combined with aggressive sales activities.
|
Partially offset by:
|
|
|
$14.8 million, or 33%, increase in residential mortgage NALs, primarily reflecting a
change in our nonaccrual policy
(see Consumer Credit section).
|
|
|
|
$11.0 million, or 49%, increase in home equity NALs, primarily reflecting a change in
our nonaccrual policy
(see Consumer Credit section).
|
NPA activity for each of the past five quarters was as follows:
Table 28 Nonperforming Asset Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
Nonperforming assets, beginning of period
|
|
$
|
690,886
|
|
|
$
|
844,752
|
|
|
$
|
1,104,864
|
|
|
$
|
1,582,702
|
|
|
$
|
1,918,368
|
|
New nonperforming assets
|
|
|
210,255
|
|
|
|
192,044
|
|
|
|
237,802
|
|
|
|
278,388
|
|
|
|
171,595
|
|
Franklin-related impact, net
|
|
|
(5,088
|
)
|
|
|
(3,506
|
)
|
|
|
(5,853
|
)
|
|
|
(251,412
|
)
|
|
|
(86,715
|
)
|
Returns to accruing status
|
|
|
(68,429
|
)
|
|
|
(70,886
|
)
|
|
|
(100,051
|
)
|
|
|
(111,168
|
)
|
|
|
(78,739
|
)
|
Loan and lease losses
|
|
|
(74,945
|
)
|
|
|
(128,730
|
)
|
|
|
(126,047
|
)
|
|
|
(151,013
|
)
|
|
|
(173,159
|
)
|
Other real estate owned gains (losses)
|
|
|
388
|
|
|
|
1,492
|
|
|
|
(5,117
|
)
|
|
|
(5,302
|
)
|
|
|
2,483
|
|
Payments
|
|
|
(73,009
|
)
|
|
|
(87,041
|
)
|
|
|
(191,296
|
)
|
|
|
(210,612
|
)
|
|
|
(140,881
|
)
|
Sales
|
|
|
(27,121
|
)
|
|
|
(57,239
|
)
|
|
|
(69,550
|
)
|
|
|
(26,719
|
)
|
|
|
(30,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets, end of period
|
|
$
|
652,937
|
|
|
$
|
690,886
|
|
|
$
|
844,752
|
|
|
$
|
1,104,864
|
|
|
$
|
1,582,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed previously, residential mortgage loans are placed on nonaccrual status at
150-days past due, with the exception of residential mortgage loans guaranteed by government
organizations which continue to accrue interest, and first-lien and second-lien home equity loans
and lines-of-credit are placed on nonaccrual status at 150-days past due and 120-days past due,
respectively.
40
The following table reflects period-end accruing loans and leases 90 days or more past due for
each of the last five quarters:
Table 29 Accruing Past Due Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases past due 90 days or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Residential mortgage (excluding loans guaranteed
by the U.S. government)
|
|
|
33,975
|
|
|
|
41,858
|
|
|
|
53,983
|
|
|
|
56,803
|
|
|
|
47,036
|
|
Home equity
|
|
|
17,451
|
|
|
|
24,130
|
|
|
|
23,497
|
|
|
|
27,160
|
|
|
|
26,797
|
|
Other consumer
|
|
|
6,227
|
|
|
|
7,578
|
|
|
|
10,177
|
|
|
|
11,423
|
|
|
|
9,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, excl. loans guaranteed by the U.S. government
|
|
|
57,653
|
|
|
|
73,566
|
|
|
|
87,657
|
|
|
|
95,386
|
|
|
|
83,366
|
|
Add: loans guaranteed by the U.S. government
|
|
|
76,979
|
|
|
|
94,440
|
|
|
|
98,288
|
|
|
|
94,249
|
|
|
|
95,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing loans and leases past due 90 days
or more, including loans guaranteed by the U.S.
government
|
|
$
|
134,632
|
|
|
$
|
168,006
|
|
|
$
|
185,945
|
|
|
$
|
189,635
|
|
|
$
|
178,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding loans guaranteed by the U.S. government,
as a percent of total loans and leases
|
|
|
0.15
|
%
|
|
|
0.19
|
%
|
|
|
0.23
|
%
|
|
|
0.25
|
%
|
|
|
0.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed by the U.S. government, as a percent of
total loans and leases
|
|
|
0.19
|
|
|
|
0.25
|
|
|
|
0.26
|
|
|
|
0.26
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including loans guaranteed by the U.S. government,
as a percent of total loans and leases
|
|
|
0.34
|
|
|
|
0.44
|
|
|
|
0.49
|
|
|
|
0.51
|
|
|
|
0.49
|
|
|
|
|
(1)
|
|
Ratios are calculated as a percentage of related loans and leases.
|
Loans guaranteed by the U.S. government accrue interest at the rate guaranteed by the
government agency. We are reimbursed from the government agency for reasonable expenses incurred
in servicing loans. The FHA reimburses us for 66% of expenses, and the VA reimburses us at a
maximum percentage of guarantee which is established for each individual loan. We have not
experienced either material losses in excess of guarantees caps or significant delays or rejected
claims from the related government entity.
The over 90-day delinquency ratio for total loans not guaranteed by a U.S. government agency
was 0.15% at June 30, 2011, representing an 8 basis point decline compared with December 31, 2010.
This decline reflected the sale of certain loans in this category.
TDR Loans
TDRs are modified loans in which a concession is provided to a borrower experiencing financial
difficulties. Loan modifications are considered TDRs when the concessions provided are not
available to the borrower through either normal channels or other sources. However, not all loan
modifications are TDRs. Our standards relating to loan modifications consider, among other
factors, minimum verified income requirements, cash flow analysis, and collateral valuations. Each
potential loan modification is reviewed individually and the terms of the loan are modified to meet
a borrowers specific circumstances at a point in time. All loan modifications, including those
classified as TDRs, are reviewed and approved. Our ALLL is largely driven by updated risk ratings
assigned to commercial loans, updated borrower credit scores on consumer loans, and borrower
delinquency history in both the commercial and consumer portfolios. As such, the provision for
credit losses is impacted primarily by changes in borrower payment performance rather than the TDR
classification. TDRs can be classified as either accrual or nonaccrual loans. Nonaccrual TDRs are
included in NALs whereas accruing TDRs are excluded from NALs as it is probable that all
contractual principal and interest due under the restructured terms will be collected.
In the workout of a problem loan, many factors are considered when determining the most
favorable resolution. For consumer loans, we evaluate the ability and willingness of the borrower
to make contractual or reduced payments, the value of the underlying collateral, and the costs
associated with the foreclosure or repossession, and remarketing of the collateral. For commercial
loans, we consider similar criteria and also evaluate the borrowers business prospects.
41
|
|
|
Residential Mortgage loan TDRs
Residential mortgage TDRs represent loan
modifications associated with traditional first-lien mortgage loans in which a
concession has been provided to the borrower. Residential mortgages identified as
TDRs involve borrowers who are unable to refinance their mortgages through our
normal mortgage origination channels or through other independent sources. Some,
but not all, of the loans may be delinquent. Modifications can include adjustments
to rates and/or principal. Modified loans identified as TDRs are aggregated into
pools for analysis. Cash flows and weighted average interest rates are used to
calculate impairment at the pooled-loan level. Once the loans are aggregated into
the pool, they continue to be classified as TDRs until contractually repaid or
charged-off. No consideration is given to removing individual loans from the pools.
|
|
|
|
Residential mortgage loans not guaranteed by a U.S. government agency such as the
FHA, VA, and the USDA, including restructured loans, are reported as accrual or
nonaccrual based upon delinquency status. NALs are those that are greater than
150-days contractually past due. Loans guaranteed by U.S. government organizations
continue to accrue interest upon delinquency.
|
|
|
|
Residential mortgage loan TDR classifications resulted in an impairment adjustment
of $0.2 million during the 2011 second quarter, and $2.2 million for the first
six-month period of 2011. Prior to the TDR classification, residential mortgage
loans individually had minimal ALLL associated with them because the ALLL is
calculated on a total pooled-portfolio basis.
|
|
|
|
Other Consumer loan TDRs
Generally, these are TDRs associated with home
equity borrowings and automobile loans. We make similar interest rate, term, and
principal concessions as with residential mortgage loan TDRs. The TDR
classification for these other consumer loans resulted in an impairment adjustment
of $0.2 million during the 2011 second quarter, and $0.7 million for the first
six-month period of 2011.
|
|
|
|
Commercial loan TDRs
Commercial accruing TDRs represent loans most often
rated as Classified and are no more than 90-days past due on contractual principal
and interest, but undergo a modification. Accruing TDRs often result from loans
rated as Classified receiving a concession at terms that are not considered a market
transaction for us. The TDR remains in accruing status as long as the customer is
less than 90 days past due on payments per the restructured loan terms and no loss
is probable.
|
|
|
|
Commercial nonaccrual TDRs result from either: (1) an accruing commercial TDR being
placed on nonaccrual status (at June 30, 2011, approximately $7.3 million of our
commercial nonaccrual TDRs represented this situation); or (2) a workout where an
existing commercial NAL is restructured and a concession is given. At June 30,
2011, approximately $70.4 million of our commercial nonaccrual TDRs resulted from
such workouts. Frequently, these workouts restructure the NAL so that two or more
new notes are created. The primary note is underwritten based upon our normal
underwriting standards at current market rates and is sized so projected cash flows
are sufficient to repay contractual principal and interest. The terms on the
secondary note(s) vary by situation, and may include notes that defer interest
payments until after the primary note is repaid. Creating two or more notes often
allows the borrower to continue a project or weather a temporary economic downturn
and allows us to right-size a loan based upon the current expectations for a
projects performance. If we believe the outstanding balance will be collected, the
note is considered for return to accrual status upon the borrower sustaining
sufficient cash flows for a six-month period of time. This six-month period could
extend before or after the restructure date. Subordinated notes created in the
workout are charged-off immediately. If, during or after the restructuring, a
charge-off occurs, any interest or principal payments received are applied to first
reduce the outstanding balance. After the outstanding balance has been satisfied,
any further payments are recorded as recoveries.
|
|
|
|
As the loans are already considered Classified, an adequate ALLL has been recorded
when appropriate
.
Consequently, a TDR classification on commercial loans does not
usually result in significant additional reserves. We consider removing the TDR
status on commercial loans if the loan is at a market rate of interest and after the
loan has performed in accordance with the restructured terms for a sustained period
of time, generally one year.
|
42
The table below presents our accruing and nonaccruing TDRs at period-end for each of the past
five quarters:
Table 30 Accruing and Nonaccruing Troubled Debt Restructured Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
Troubled debt restructured loans accruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
$
|
313,772
|
|
|
$
|
333,492
|
|
|
$
|
328,411
|
|
|
$
|
304,356
|
|
|
$
|
281,473
|
|
Other consumer
|
|
|
75,036
|
|
|
|
78,488
|
|
|
|
76,586
|
|
|
|
73,210
|
|
|
|
65,061
|
|
Commercial
|
|
|
240,126
|
|
|
|
206,462
|
|
|
|
222,632
|
|
|
|
157,971
|
|
|
|
141,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructured loans
accruing
|
|
|
628,934
|
|
|
|
618,442
|
|
|
|
627,629
|
|
|
|
535,537
|
|
|
|
487,887
|
|
Troubled debt restructured loans nonaccruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
14,378
|
|
|
|
8,523
|
|
|
|
5,789
|
|
|
|
10,581
|
|
|
|
11,337
|
|
Other consumer
|
|
|
140
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
77,745
|
|
|
|
37,858
|
|
|
|
33,462
|
|
|
|
33,236
|
|
|
|
90,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructured loans
nonaccruing
|
|
|
92,263
|
|
|
|
46,395
|
|
|
|
39,251
|
|
|
|
43,817
|
|
|
|
101,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructured loans
|
|
$
|
721,197
|
|
|
$
|
664,837
|
|
|
$
|
666,880
|
|
|
$
|
579,354
|
|
|
$
|
589,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACL
(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed
Consolidated Financial Statements.)
We maintain two reserves, both of which in our judgment are appropriate to absorb credit
losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves
comprise the total ACL. Our Credit Administration group is responsible for developing the
methodology assumptions and estimates used in the calculation, as well as determining the
appropriateness of the ACL. The ALLL represents the estimate of losses inherent in the loan
portfolio at the reported date. Additions to the ALLL result from recording provision expense for
loan losses or increased risk levels resulting from loan risk-rating downgrades, while reductions
reflect charge-offs, recoveries, decreased risk levels resulting from loan risk-rating upgrades, or
the sale of loans. The AULC is determined by applying the transaction reserve process to the
unfunded portion of the loan exposures adjusted by an applicable funding expectation.
A provision for credit losses is recorded to adjust the ACL to the level we have determined to
be appropriate to absorb credit losses inherent in our loan and lease portfolio. The provision for
credit losses in the 2011 second quarter was $35.8 million, compared with $49.4 million in the
prior quarter and $193.4 million in the year-ago quarter. The decline in provision expense
reflects improved credit migration as shown by a combination of lower NCOs and the reduction of
commercial Criticized loans.
We regularly evaluate the appropriateness of the ACL by performing on-going evaluations of the
loan and lease portfolio, including such factors as the differing economic risks associated with
each loan category, the financial condition of specific borrowers, the level of delinquent loans,
the value of any collateral and, where applicable, the existence of any guarantees or other
documented support. We evaluate the impact of changes in interest rates and overall economic
conditions on the ability of borrowers to meet their financial obligations when quantifying our
exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In
addition to general economic conditions and the other factors described above, we also consider the
impact of declining residential real estate values and the diversification of CRE loans,
particularly loans secured by retail properties.
Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a
comparison of certain ACL benchmarks to current performance. While the total ACL balance has
declined in recent quarters, all of the relevant benchmarks improved as a result of the asset
quality improvement. The coverage ratios of NALs, Criticized, and Classified loans have
significantly improved in recent quarters despite the decline in the ACL level. For example, the
ACL coverage ratio associated with NALs was 181% at June 30, 2011, compared with 166% at December
31, 2010 and 120% at June 30, 2010.
43
The table below reflects activity in the ALLL and the AULC for each of the last five quarters:
Table 31 Quarterly Allowance for Credit Losses Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Allowance for loan and lease losses,
beginning of period
|
|
$
|
1,133,226
|
|
|
$
|
1,249,008
|
|
|
$
|
1,336,352
|
|
|
$
|
1,402,160
|
|
|
$
|
1,477,969
|
|
Loan and lease losses
|
|
|
(128,701
|
)
|
|
|
(199,007
|
)
|
|
|
(205,587
|
)
|
|
|
(221,144
|
)
|
|
|
(312,954
|
)
|
Recoveries of loans previously charged-off
|
|
|
31,167
|
|
|
|
33,924
|
|
|
|
33,336
|
|
|
|
36,630
|
|
|
|
33,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan and lease losses
|
|
|
(97,534
|
)
|
|
|
(165,083
|
)
|
|
|
(172,251
|
)
|
|
|
(184,514
|
)
|
|
|
(279,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses
|
|
|
36,948
|
|
|
|
49,301
|
|
|
|
84,907
|
|
|
|
118,788
|
|
|
|
203,633
|
|
Allowance for assets sold
|
|
|
(1,514
|
)
|
|
|
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period
|
|
$
|
1,071,126
|
|
|
$
|
1,133,226
|
|
|
$
|
1,249,008
|
|
|
$
|
1,336,352
|
|
|
$
|
1,402,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period
|
|
$
|
42,211
|
|
|
$
|
42,127
|
|
|
$
|
40,061
|
|
|
$
|
39,689
|
|
|
$
|
49,916
|
|
Provision for (reduction in) unfunded loan
commitments and letters of credit losses
|
|
|
(1,151
|
)
|
|
|
84
|
|
|
|
2,066
|
|
|
|
372
|
|
|
|
(10,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period
|
|
$
|
41,060
|
|
|
$
|
42,211
|
|
|
$
|
42,127
|
|
|
$
|
40,061
|
|
|
$
|
39,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses, end of period
|
|
$
|
1,112,186
|
|
|
$
|
1,175,437
|
|
|
$
|
1,291,135
|
|
|
$
|
1,376,413
|
|
|
$
|
1,441,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses as % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
2.74
|
%
|
|
|
2.96
|
%
|
|
|
3.28
|
%
|
|
|
3.56
|
%
|
|
|
3.79
|
%
|
Nonaccrual loans and leases
|
|
|
174
|
|
|
|
178
|
|
|
|
161
|
|
|
|
136
|
|
|
|
117
|
|
Nonperforming assets
|
|
|
164
|
|
|
|
164
|
|
|
|
148
|
|
|
|
121
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses as % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
2.84
|
%
|
|
|
3.07
|
%
|
|
|
3.39
|
%
|
|
|
3.67
|
%
|
|
|
3.90
|
%
|
Nonaccrual loans and leases
|
|
|
181
|
|
|
|
185
|
|
|
|
166
|
|
|
|
140
|
|
|
|
120
|
|
Nonperforming assets
|
|
|
170
|
|
|
|
170
|
|
|
|
153
|
|
|
|
125
|
|
|
|
91
|
|
The reduction in the ALLL, compared with both March 31, 2011, and December 31, 2010, reflected
a decline in the commercial portfolio ALLL as a result of NCOs on loans with specific reserves, and
an overall reduction in the level of commercial Criticized loans. Commercial Criticized loans are
commercial loans rated as OLEM, Substandard, Doubtful, or Loss. As shown in the table below,
commercial Criticized loans declined $0.3 billion from March 31, 2011, and $0.7 billion from
December 31, 2010, reflecting significant upgrade and payment activity.
Table 32 Criticized Commercial Loan Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
Criticized commercial loans, beginning of period
|
|
$
|
2,660,792
|
|
|
$
|
3,074,481
|
|
|
$
|
3,637,533
|
|
|
$
|
4,106,602
|
|
|
$
|
4,608,610
|
|
New additions / increases
|
|
|
250,422
|
|
|
|
169,884
|
|
|
|
289,850
|
|
|
|
407,514
|
|
|
|
280,353
|
|
Advances
|
|
|
44,442
|
|
|
|
61,516
|
|
|
|
52,282
|
|
|
|
75,386
|
|
|
|
79,392
|
|
Upgrades to Pass
|
|
|
(271,698
|
)
|
|
|
(238,518
|
)
|
|
|
(382,713
|
)
|
|
|
(391,316
|
)
|
|
|
(409,092
|
)
|
Payments
|
|
|
(231,819
|
)
|
|
|
(294,564
|
)
|
|
|
(401,302
|
)
|
|
|
(408,698
|
)
|
|
|
(331,145
|
)
|
Loan losses
|
|
|
(72,989
|
)
|
|
|
(112,008
|
)
|
|
|
(121,169
|
)
|
|
|
(151,955
|
)
|
|
|
(121,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Criticized commercial loans, end of period
|
|
$
|
2,379,150
|
|
|
$
|
2,660,792
|
|
|
$
|
3,074,481
|
|
|
$
|
3,637,533
|
|
|
$
|
4,106,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The entire loan and lease portfolio has shown steadily improving credit quality trends
throughout 2010 and 2011, and we believe that early identification of problem loans and aggressive
action plans for these problem loans, combined with originating high quality new loans will result
in continued improvement in our key credit quality metrics. However, the continued weakness in the
residential real estate market and the overall economic conditions remained stressed, and
additional risks emerged during the first six-month period of 2011. These additional risks include
the U.S. debt ceiling discussions, the budget issues in local governments, the political
instability in the Middle East with its ramifications on the cost of oil, European instability, and
the flattening of the economic growth in the current quarter compared to the prior quarter.
Continued high unemployment, among other factors, has slowed any significant recovery. In the
near-term, we anticipate a continued high unemployment rate and the concern around the U.S., state,
and local government budget issues will impact the financial condition of some of our retail and
commercial borrowers. The pronounced downturn in the residential real estate market that began in
early 2007 has resulted in significantly lower residential real estate values. We have significant
exposure to loans secured by residential real estate and continue to be an active lender in our
communities. The impact of the downturn in real estate values has had a significant impact on some
of our borrowers as evidenced by the higher delinquencies and NCOs experienced over the past three
years. We do not anticipate any meaningful economic improvement in the near-term. All of these
factors are impacting consumer confidence, as well as business investments and acquisitions. Given
the combination of these noted factors, we believe that our ACL is appropriate and its coverage
level is reflective of the quality of our portfolio and the operating environment.
44
The table below reflects the allocation of our ACL among our various loan categories during
each of the past five quarters:
Table 33 Allocation of Allowance for Credit Losses (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
|
$
|
281,016
|
|
|
|
35
|
%
|
|
$
|
299,564
|
|
|
|
35
|
%
|
|
$
|
340,614
|
|
|
|
34
|
%
|
|
$
|
353,431
|
|
|
|
33
|
%
|
|
$
|
426,767
|
|
|
|
34
|
%
|
Commercial real
estate
|
|
|
463,874
|
|
|
|
16
|
|
|
|
511,068
|
|
|
|
17
|
|
|
|
588,251
|
|
|
|
18
|
|
|
|
654,219
|
|
|
|
18
|
|
|
|
695,778
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
744,890
|
|
|
|
51
|
|
|
|
810,632
|
|
|
|
52
|
|
|
|
928,865
|
|
|
|
52
|
|
|
|
1,007,650
|
|
|
|
51
|
|
|
|
1,122,545
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
55,428
|
|
|
|
16
|
|
|
|
50,862
|
|
|
|
15
|
|
|
|
49,488
|
|
|
|
15
|
|
|
|
44,505
|
|
|
|
14
|
|
|
|
41,762
|
|
|
|
13
|
|
Home equity
|
|
|
146,444
|
|
|
|
20
|
|
|
|
149,370
|
|
|
|
20
|
|
|
|
150,630
|
|
|
|
20
|
|
|
|
154,323
|
|
|
|
21
|
|
|
|
117,708
|
|
|
|
20
|
|
Residential mortgage
|
|
|
98,992
|
|
|
|
12
|
|
|
|
96,741
|
|
|
|
12
|
|
|
|
93,289
|
|
|
|
12
|
|
|
|
93,407
|
|
|
|
12
|
|
|
|
79,105
|
|
|
|
12
|
|
Other consumer
|
|
|
25,372
|
|
|
|
1
|
|
|
|
25,621
|
|
|
|
1
|
|
|
|
26,736
|
|
|
|
1
|
|
|
|
36,467
|
|
|
|
2
|
|
|
|
41,040
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
326,236
|
|
|
|
49
|
|
|
|
322,594
|
|
|
|
48
|
|
|
|
320,143
|
|
|
|
48
|
|
|
|
328,702
|
|
|
|
49
|
|
|
|
279,615
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan and lease
losses
|
|
|
1,071,126
|
|
|
|
100
|
%
|
|
|
1,133,226
|
|
|
|
100
|
%
|
|
|
1,249,008
|
|
|
|
100
|
%
|
|
|
1,336,352
|
|
|
|
100
|
%
|
|
|
1,402,160
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan
commitments
|
|
|
41,060
|
|
|
|
|
|
|
|
42,211
|
|
|
|
|
|
|
|
42,127
|
|
|
|
|
|
|
|
40,061
|
|
|
|
|
|
|
|
39,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
1,112,186
|
|
|
|
|
|
|
$
|
1,175,437
|
|
|
|
|
|
|
$
|
1,291,135
|
|
|
|
|
|
|
$
|
1,376,413
|
|
|
|
|
|
|
$
|
1,441,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Percentages represent the percentage of each loan and lease category to total loans and leases.
|
The consumer-related ALLL at June 30, 2011, increased $6.1 million, or 2%, from December
31, 2010, primarily reflecting increased loan-related balances over the first six-month period of
2011. The home equity-related ALLL decreased slightly as a result of lower delinquency levels, and
to a lesser extent, improvement in the weighted average FICO score for the portfolio.
The table below reflects activity in the ALLL and AULC for the first six-month periods ended
June 30, 2011 and 2010.
Table 34 Year to Date Allowance for Credit Losses Analysis
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(dollar amounts in thousands)
|
|
2011
|
|
|
2010
|
|
Allowance for loan and lease losses, beginning of period
|
|
$
|
1,249,008
|
|
|
$
|
1,482,479
|
|
Loan and lease losses
|
|
|
(327,708
|
)
|
|
|
(577,176
|
)
|
Recoveries of loans previously charged-off
|
|
|
65,091
|
|
|
|
59,467
|
|
|
|
|
|
|
|
|
Net loan and lease losses
|
|
|
(262,617
|
)
|
|
|
(517,709
|
)
|
Provision for loan and lease losses
|
|
|
86,249
|
|
|
|
437,604
|
|
Allowance for assets sold
|
|
|
(1,514
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period
|
|
$
|
1,071,126
|
|
|
$
|
1,402,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period
|
|
$
|
42,127
|
|
|
$
|
48,879
|
|
Provision for (reduction in) unfunded loan commitments
and letters of credit losses
|
|
|
(1,067
|
)
|
|
|
(9,190
|
)
|
Allowance for unfunded loan commitments
and letters of credit, end of period
|
|
$
|
41,060
|
|
|
$
|
39,689
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
1,112,186
|
|
|
$
|
1,441,849
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses as % of:
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
2.74
|
%
|
|
|
3.79
|
%
|
Nonaccrual loans and leases
|
|
|
174
|
|
|
|
117
|
|
Nonperforming assets
|
|
|
164
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses as % of:
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
2.84
|
%
|
|
|
3.90
|
%
|
Nonaccrual loans and leases
|
|
|
181
|
|
|
|
120
|
|
Nonperforming assets
|
|
|
170
|
|
|
|
91
|
|
45
NCOs
(This section should be read in conjunction with Significant Item 2 and the Franklin-related
Impacts section.)
Any loan in any portfolio may be charged-off prior to the policies described below if a loss
confirming event has occurred. Loss confirming events include, but are not limited to, bankruptcy
(unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a
collateral deficiency and that asset is the sole source of repayment.
C&I and CRE loans are either charged-off or written down to net realizable value at 90-days
past due. Automobile loans and other consumer loans are charged-off at 120-days past due.
First-lien and second-lien home equity loans are charged-off to the estimated fair value of the
collateral at 150-days past due and 120-days past due, respectively. Residential mortgages are
charged-off to the estimated fair value of the collateral at 150-days past due.
46
The following table reflects NCO detail for each of the last five quarters.
Table 35 Quarterly Net Charge-off Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
Net charge-offs by loan and lease type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
18,704
|
|
|
$
|
42,191
|
|
|
$
|
59,124
|
|
|
$
|
62,241
|
|
|
$
|
58,128
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
4,145
|
|
|
|
28,400
|
|
|
|
11,084
|
|
|
|
17,936
|
|
|
|
45,562
|
|
Commercial
|
|
|
23,450
|
|
|
|
39,283
|
|
|
|
33,787
|
|
|
|
45,725
|
|
|
|
36,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
27,595
|
|
|
|
67,683
|
|
|
|
44,871
|
|
|
|
63,661
|
|
|
|
81,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
46,299
|
|
|
|
109,874
|
|
|
|
103,995
|
|
|
|
125,902
|
|
|
|
139,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
2,255
|
|
|
|
4,712
|
|
|
|
7,035
|
|
|
|
5,570
|
|
|
|
5,436
|
|
Home equity
(1)
|
|
|
25,441
|
|
|
|
26,715
|
|
|
|
29,175
|
|
|
|
27,827
|
|
|
|
44,470
|
|
Residential mortgage
(2), (3)
|
|
|
16,455
|
|
|
|
18,932
|
|
|
|
26,775
|
|
|
|
18,961
|
|
|
|
82,848
|
|
Other consumer
|
|
|
7,084
|
|
|
|
4,850
|
|
|
|
5,271
|
|
|
|
6,254
|
|
|
|
6,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
51,235
|
|
|
|
55,209
|
|
|
|
68,256
|
|
|
|
58,612
|
|
|
|
139,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs
|
|
$
|
97,534
|
|
|
$
|
165,083
|
|
|
$
|
172,251
|
|
|
$
|
184,514
|
|
|
$
|
279,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs annualized percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
0.56
|
%
|
|
|
1.29
|
%
|
|
|
1.85
|
%
|
|
|
2.01
|
%
|
|
|
1.90
|
%
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2.99
|
|
|
|
18.59
|
|
|
|
6.19
|
|
|
|
7.25
|
|
|
|
14.25
|
|
Commercial
|
|
|
1.65
|
|
|
|
2.66
|
|
|
|
2.22
|
|
|
|
3.01
|
|
|
|
2.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
1.77
|
|
|
|
4.15
|
|
|
|
2.64
|
|
|
|
3.60
|
|
|
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
0.94
|
|
|
|
2.24
|
|
|
|
2.13
|
|
|
|
2.59
|
|
|
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
0.15
|
|
|
|
0.33
|
|
|
|
0.51
|
|
|
|
0.43
|
|
|
|
0.47
|
|
Home equity
(1)
|
|
|
1.29
|
|
|
|
1.38
|
|
|
|
1.51
|
|
|
|
1.47
|
|
|
|
2.36
|
|
Residential mortgage
(2), (3)
|
|
|
1.44
|
|
|
|
1.70
|
|
|
|
2.42
|
|
|
|
1.73
|
|
|
|
7.19
|
|
Other consumer
|
|
|
5.27
|
|
|
|
3.47
|
|
|
|
3.66
|
|
|
|
3.83
|
|
|
|
3.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
1.08
|
|
|
|
1.20
|
|
|
|
1.50
|
|
|
|
1.32
|
|
|
|
3.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs as a % of average loans
|
|
|
1.01
|
%
|
|
|
1.73
|
%
|
|
|
1.82
|
%
|
|
|
1.98
|
%
|
|
|
3.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The 2010 second quarter included net charge-offs totaling $14,678 thousand associated with the transfer of Franklin-related home equity loans to loans held for sale and $1,262 thousand of other
Franklin-related net charge-offs.
|
|
(2)
|
|
The 2010 second quarter included net charge-offs totaling $60,822 thousand associated with the transfer of Franklin-related residential mortgage loans to loans held for sale and $3,403 thousand of
other Franklin-related net charge-offs.
|
|
(3)
|
|
The 2010 fourth quarter included net charge-offs of $16,389 thousand related to the sale of certain underperforming residential mortgage loans.
|
In assessing NCO trends, it is helpful to understand the process of how these loans are
treated as they deteriorate over time. The allowance for loans established at origination is
consistent with the level of risk associated with the original underwriting. As a part of our
normal portfolio management process for commercial loans, the loan is periodically reviewed and the
allowance is increased or decreased as warranted. If the quality of a loan has deteriorated, it
migrates to a lower quality risk rating, requiring a higher reserve amount. Charge-offs, if
necessary, are generally recognized in a period after the specific allowance was established. If
the previously established allowance exceeds that needed to satisfactorily resolve the problem
loan, a reduction in the overall level of the allowance could be recognized. In summary, if loan
quality deteriorates, the typical credit sequence would be periods of allowance building, followed
by periods of higher NCOs as the previously established allowance is utilized. Additionally, an
increase in the allowance either precedes or is in conjunction with increases in NALs. When a
loan is classified as NAL, it is evaluated for specific allowance or charge-off. As a result, an
increase in NALs does not necessarily result in an increase in the allowance or an expectation of
higher future NCOs.
47
2011 Second Quarter versus 2011 First Quarter
C&I NCOs declined $23.5 million, or 56%. CRE NCOs decreased $40.1 million, or 59%. These
declines were evident across our geographic footprint and generally associated with small
relationships. The performance of both portfolios was consistent with
our expectations. Based on asset quality trends, we continue to anticipate this lower level
of CRE NCOs in future quarters.
Automobile NCOs declined $2.5 million, or 52%, and reflected historically lower delinquency
levels during the current quarter, the continued high credit quality of originations, and a strong
resale market for used vehicles.
Home equity NCOs declined $1.3 million, or 5%. This performance was consistent with our
expectations for the portfolio given the economic conditions in our markets. We continue to manage
the default rate through focused delinquency monitoring as virtually all defaults for second-lien
home equity loans incur significant losses primarily due to insufficient equity in the collateral
property.
Residential mortgage NCOs declined $2.5 million, or 13%. The current quarter included
Franklin-related net charge-offs of $0.6 million, and the prior quarter included $6.8 million of
NCOs related to a change in loss recognition policy
(see Consumer Credit section)
and
Franklin-related net recoveries of $3.1 million. Excluding these impacts, residential mortgage
NCOs increased $0.7 million, consistent with our expectations.
The following table reflects NCO activity for the first six-month periods ended June 30, 2011
and 2010.
48
Table 36 Year to Date Net Charge-off Analysis
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(dollar amounts in thousands)
|
|
2011
|
|
|
2010
|
|
Net charge-offs by loan and lease type:
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
60,895
|
|
|
$
|
133,567
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
32,545
|
|
|
|
79,988
|
|
Commercial
|
|
|
62,733
|
|
|
|
87,042
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
95,278
|
|
|
|
167,030
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
156,173
|
|
|
|
300,597
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
6,967
|
|
|
|
13,967
|
|
Home equity
(1)
|
|
|
52,156
|
|
|
|
82,371
|
|
Residential mortgage
(2)
|
|
|
35,387
|
|
|
|
107,159
|
|
Other loans
|
|
|
11,934
|
|
|
|
13,615
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
106,444
|
|
|
|
217,112
|
|
|
|
|
|
|
|
|
Total net charge-offs
|
|
$
|
262,617
|
|
|
$
|
517,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs annualized percentages:
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
0.92
|
%
|
|
|
2.18
|
%
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
11.18
|
|
|
|
11.90
|
|
Commercial
|
|
|
2.17
|
|
|
|
2.82
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
2.99
|
|
|
|
4.44
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1.59
|
|
|
|
3.04
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
0.24
|
|
|
|
0.63
|
|
Home equity
(1)
|
|
|
1.34
|
|
|
|
2.18
|
|
Residential mortgage
(2)
|
|
|
1.57
|
|
|
|
4.72
|
|
Other loans
|
|
|
4.36
|
|
|
|
3.84
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
1.14
|
|
|
|
2.52
|
|
|
|
|
|
|
|
|
Net charge-offs as a % of average loans
|
|
|
1.37
|
%
|
|
|
2.80
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The 2010 first six-month period included net charge-offs totaling $14,678 thousand associated with the transfer of
Franklin-related home equity loans to loans held for sale and $4,991 thousand of other Franklin-related net charge-offs.
|
|
(2)
|
|
The 2010 first six-month period included net charge-offs totaling $60,822 thousand associated with the transfer of
Franklin-related residential mortgage loans to loans held for sale and $11,525 thousand of other Franklin-related net
charge-offs.
|
2011 First Six Months versus 2010 First Six Months
C&I NCOs decreased $72.7 million, or 54%. CRE NCOs decreased $71.8 million, or 43%. These
declines primarily reflected significant credit quality improvement in the underlying portfolio as
well as our on-going proactive credit management practices.
Automobile NCOs decreased $7.0 million, or 50%, reflected our consistent high quality
origination profile, as well as a continued strong market for used automobiles. This focus on
origination quality has been the primary driver for the improvement in this portfolio in the
current period compared with the year-ago period. Origination quality remained high.
49
Home equity NCOs declined $30.2 million, or 37%. The first six-month period of 2010 included
$19.7 million of Franklin-related NCOs compared with no Franklin-related NCOs in the current
period. Excluding the Franklin-related impacts, home equity NCOs decreased $10.5 million compared
with the first six-month period of 2010. The performance was consistent with our expectations for
the portfolio.
Residential mortgage NCOs declined $71.8 million, or 67%. The first six-month period of 2010
included $72.3 million of Franklin-related net charge-offs, while the first six-month period of
2011 included $6.8 million of NCOs related to a change in loss recognition policy
(see Consumer
Credit section)
and Franklin-related net recoveries of $2.5 million. Excluding these impacts,
residential mortgage NCOs decreased $3.8 million compared with the first six-month period of 2010.
The performance was consistent with our expectations for the portfolio.
AVAILABLE-FOR-SALE AND OTHER SECURITIES PORTFOLIO
(This section should be read in conjunction with Note 4 of Notes to Unaudited Condensed
Consolidated Financial Statements.)
During the first six-month period of 2011, we recorded $4.3 million of credit OTTI losses.
This amount was comprised of $3.2 million related to the pooled-trust-preferred securities, $0.9
million related to the CMO securities, and $0.2 million related to the Alt-A mortgage-backed
securities. Given the continued disruption in the housing markets, we may be required to recognize
additional credit OTTI losses in future periods with respect to our available-for-sale and other
securities portfolio. The amount and timing of any additional credit OTTI will depend on the
decline in the underlying cash flows of the securities. If our intent to hold temporarily impaired
securities changes in future periods, we may be required to recognize noncredit OTTI through
income, which will negatively impact earnings.
Alt-A Mortgage-Backed, Pooled-Trust-Preferred, and Private-Label CMO Securities
Our three highest risk segments of our investment portfolio are the Alt-A mortgage-backed,
pooled-trust-preferred, and private-label CMO portfolios. The Alt-A mortgage-backed securities and
pooled-trust-preferred securities are in the asset-backed securities portfolio. The performance of
the underlying securities in each of these segments continued to reflect the economic environment.
Each of these securities in these three segments is subjected to a rigorous review of its projected
cash flows. These reviews are supported with analysis from independent third parties.
The following table presents the credit ratings for our Alt-A mortgage-backed,
pooled-trust-preferred, and private label CMO securities as of June 30, 2011:
Table 37 Credit Ratings of Selected Investment Securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Average Credit Rating of Fair Value Amount
|
|
(dollar amounts in millions)
|
|
Cost
|
|
|
Fair Value
|
|
|
AAA
|
|
|
AA +/-
|
|
|
A +/-
|
|
|
BBB +/-
|
|
|
<BBB-
|
|
Private-label CMO securities
|
|
$
|
97.7
|
|
|
$
|
88.8
|
|
|
$
|
3.3
|
|
|
$
|
6.6
|
|
|
$
|
20.5
|
|
|
$
|
8.2
|
|
|
$
|
50.2
|
|
Alt-A mortgage-backed securities
|
|
|
62.1
|
|
|
|
55.5
|
|
|
|
|
|
|
|
26.4
|
|
|
|
10.9
|
|
|
|
|
|
|
|
18.2
|
|
Pooled-trust-preferred securities
|
|
|
228.7
|
|
|
|
110.3
|
|
|
|
|
|
|
|
|
|
|
|
26.3
|
|
|
|
|
|
|
|
84.0
|
|
Total at June 30, 2011
|
|
$
|
388.5
|
|
|
$
|
254.6
|
|
|
$
|
3.3
|
|
|
$
|
33.0
|
|
|
$
|
57.7
|
|
|
$
|
8.2
|
|
|
$
|
152.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2010
|
|
$
|
435.8
|
|
|
$
|
284.6
|
|
|
$
|
41.2
|
|
|
$
|
33.8
|
|
|
$
|
29.7
|
|
|
$
|
15.1
|
|
|
$
|
164.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Credit ratings reflect the lowest current rating assigned by a nationally recognized credit rating agency.
|
Negative changes to the above credit ratings would generally result in an increase of our
risk-weighted assets, and a reduction to our regulatory capital ratios.
The following table summarizes the relevant characteristics of our pooled-trust-preferred
securities portfolio at June 30, 2011. Each security is part of a pool of issuers and supports a
more senior tranche of securities except for the I-Pre TSL II, MM Comm II and MM Comm III
securities which are the most senior class.
50
Table 38 Trust-preferred Securities Data
June 30, 2011
(dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferrals
|
|
|
Expected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Defaults
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Issuers
|
|
|
Defaults
|
|
|
as a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowest
|
|
|
Currently
|
|
|
as a % of
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Credit
|
|
|
Performing/
|
|
|
Original
|
|
|
Performing
|
|
|
Excess
|
|
Deal Name
|
|
Par Value
|
|
|
Cost
|
|
|
Value
|
|
|
Loss
|
|
|
Rating(2)
|
|
|
Remaining(3)
|
|
|
Collateral
|
|
|
Collateral
|
|
|
Subordination(4)
|
|
Alesco II
(1)
|
|
$
|
41,447
|
|
|
$
|
31,540
|
|
|
$
|
11,249
|
|
|
$
|
(20,291
|
)
|
|
|
C
|
|
|
|
32/38
|
|
|
|
14
|
%
|
|
|
16
|
%
|
|
|
|
%
|
Alesco IV
(1)
|
|
|
20,864
|
|
|
|
8,243
|
|
|
|
459
|
|
|
|
(7,784
|
)
|
|
|
C
|
|
|
|
31/42
|
|
|
|
17
|
|
|
|
26
|
|
|
|
|
|
ICONS
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
13,418
|
|
|
|
(6,582
|
)
|
|
BB
|
|
|
|
28/29
|
|
|
|
3
|
|
|
|
13
|
|
|
|
56
|
|
I-Pre TSL II
|
|
|
36,680
|
|
|
|
36,582
|
|
|
|
26,329
|
|
|
|
(10,253
|
)
|
|
|
A
|
|
|
|
27/28
|
|
|
|
3
|
|
|
|
11
|
|
|
|
74
|
|
MM Comm II
|
|
|
20,970
|
|
|
|
20,041
|
|
|
|
19,712
|
|
|
|
(329
|
)
|
|
BB
|
|
|
|
4/7
|
|
|
|
5
|
|
|
|
3
|
|
|
|
17
|
|
MM Comm III
|
|
|
11,081
|
|
|
|
10,587
|
|
|
|
7,344
|
|
|
|
(3,243
|
)
|
|
CC
|
|
|
|
6/11
|
|
|
|
7
|
|
|
|
12
|
|
|
|
28
|
|
Pre TSL IX
(1)
|
|
|
5,014
|
|
|
|
3,995
|
|
|
|
1,561
|
|
|
|
(2,434
|
)
|
|
|
C
|
|
|
|
33/48
|
|
|
|
27
|
|
|
|
22
|
|
|
|
|
|
Pre TSL X
(1)
|
|
|
17,684
|
|
|
|
9,915
|
|
|
|
3,475
|
|
|
|
(6,440
|
)
|
|
|
C
|
|
|
|
35/55
|
|
|
|
40
|
|
|
|
29
|
|
|
|
|
|
Pre TSL XI
(1)
|
|
|
25,362
|
|
|
|
22,725
|
|
|
|
7,647
|
|
|
|
(15,078
|
)
|
|
|
C
|
|
|
|
44/64
|
|
|
|
29
|
|
|
|
21
|
|
|
|
|
|
Pre TSL XIII
(1)
|
|
|
28,073
|
|
|
|
22,703
|
|
|
|
7,653
|
|
|
|
(15,050
|
)
|
|
|
C
|
|
|
|
45/65
|
|
|
|
31
|
|
|
|
22
|
|
|
|
|
|
Reg Diversified
(1)
|
|
|
25,500
|
|
|
|
7,499
|
|
|
|
484
|
|
|
|
(7,015
|
)
|
|
|
D
|
|
|
|
23/44
|
|
|
|
46
|
|
|
|
34
|
|
|
|
|
|
Soloso
(1)
|
|
|
12,500
|
|
|
|
3,906
|
|
|
|
721
|
|
|
|
(3,185
|
)
|
|
|
C
|
|
|
|
42/68
|
|
|
|
29
|
|
|
|
21
|
|
|
|
|
|
Tropic III
|
|
|
31,000
|
|
|
|
31,000
|
|
|
|
10,232
|
|
|
|
(20,768
|
)
|
|
CC
|
|
|
|
25/45
|
|
|
|
39
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
296,175
|
|
|
$
|
228,736
|
|
|
$
|
110,284
|
|
|
$
|
(118,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Security was determined to have OTTI. As such, the book value is net of recorded credit impairment.
|
|
(2)
|
|
For purposes of comparability, the lowest credit rating expressed is equivalent to Fitch ratings even where the lowest rating is based on another nationally recognized credit rating agency.
|
|
(3)
|
|
Includes both banks and/or insurance companies.
|
|
(4)
|
|
Excess subordination percentage represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences credit impairment. Excess subordinated
percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and
expected future default percentages.
|
Market Risk
Market risk represents the risk of loss due to changes in market values of assets and
liabilities. We incur market risk in the normal course of business through exposures to market
interest rates, foreign exchange rates, equity prices, credit spreads, and expected lease residual
values. We have identified two primary sources of market risk: interest rate risk and price risk.
Interest Rate Risk
OVERVIEW
Interest rate risk is the risk to earnings and value arising from changes in market interest
rates. Interest rate risk arises from timing differences in the repricings and maturities of
interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected
maturities of assets and liabilities arising from embedded options, such as borrowers ability to
prepay residential mortgage loans at any time and depositors ability to redeem certificates of
deposit before maturity (option risk), changes in the shape of the yield curve where interest rates
increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread
relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).
INCOME SIMULATION AND ECONOMIC VALUE ANALYSIS
Interest rate risk measurement is performed monthly. Two broad approaches to modeling
interest rate risk are employed: income simulation and economic value analysis. An income
simulation analysis is used to measure the sensitivity of forecasted ISE to changes in market rates
over a one-year time period. Although bank owned life insurance, automobile operating lease
assets, and excess cash balances held at the Federal Reserve Bank are classified as
noninterest-earning assets, and the net revenue from these assets is recorded in noninterest income
and noninterest expense, these portfolios are included in the interest sensitivity analysis because
they have attributes similar to interest-earning assets. EVE analysis is used to measure the
sensitivity of the values of period-end assets and liabilities to changes in market interest rates. EVE analysis serves as a
complement to ISE analysis as it provides risk exposure estimates for time periods beyond the
one-year simulation period.
51
The models used for these measurements take into account prepayment speeds on mortgage loans,
mortgage-backed securities, and consumer installment loans, as well as cash flows of other assets
and liabilities. Balance sheet growth assumptions are also considered in the ISE analysis. The
models include the effects of derivatives, such as interest rate swaps, caps, floors, and other
types of interest rate options.
The baseline scenario for ISE analysis, with which all other scenarios are compared, is based
on market interest rates implied by the prevailing yield curve as of the period-end. Alternative
interest rate scenarios are then compared with the baseline scenario. These alternative interest
rate scenarios include parallel rate shifts on both a gradual and an immediate basis, movements in
interest rates that alter the shape of the yield curve (e.g., flatter or steeper yield curve), and
no changes in current interest rates for the entire measurement period. Scenarios are also
developed to measure short-term repricing risks, such as the impact of LIBOR-based interest rates
rising or falling faster than the prime rate.
The simulations for evaluating short-term interest rate risk exposure are scenarios that model
gradual +/-100 and +/-200 basis points parallel shifts in market interest rates over the next
one-year period beyond the interest rate change implied by the current yield curve. We assumed
market interest rates would not fall below 0% over the next one-year period for the scenarios that
used the -100 and -200 basis points parallel shift in market interest rates. The table below shows
the results of the scenarios as of June 30, 2011, and December 31, 2010. All of the positions were
within the board of directors policy limits as of June 30, 2011.
Table 39 Interest Sensitive Earnings at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitive Earnings at Risk (%)
|
|
Basis point change scenario
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board policy limits
|
|
|
-4.0
|
%
|
|
|
-2.0
|
%
|
|
|
-2.0
|
%
|
|
|
-4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
-2.5
|
|
|
|
-1.5
|
|
|
|
1.3
|
|
|
|
1.9
|
|
December 31, 2010
|
|
|
-3.2
|
|
|
|
-1.8
|
|
|
|
0.3
|
|
|
|
0.0
|
|
The ISE at risk reported as of June 30, 2011, for the +200 basis points scenario shows a
significant change to an asset sensitive near-term interest rate risk position compared with
December 31, 2010. The ALCOs strategy is to be near-term asset-sensitive to a rising rate
scenario. The primary factor contributing to this change is the 2011 first quarter termination of
$4.6 billion of interest rate swaps maturing through June 2012.
The following table shows the income sensitivity of select portfolios to changes in market
interest rates. A portfolio with 100% sensitivity would indicate that interest income and expense
will change with the same magnitude and direction as interest rates. A portfolio with 0%
sensitivity is insensitive to changes in interest rates. For the +200 basis points scenario, total
interest-sensitive income is 37.7% sensitive to changes in market interest rates, while total
interest-sensitive expense is 41.1% sensitive to changes in market interest rates. However, net
interest income at risk for the +200 basis points scenario has an asset-sensitive near-term
interest rate risk position because of the larger base of total interest-sensitive income relative
to total interest-sensitive expense.
Table 40 Interest Income/Expense Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
Percent Change in Interest Income/Expense for a Given
|
|
|
|
Total Earning
|
|
|
Change in Interest Rates
|
|
|
|
Assets (1)
|
|
|
Over / (Under) Base Case Parallel Ramp
|
|
Basis point change scenario
|
|
|
|
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
81
|
%
|
|
|
-17.6
|
%
|
|
|
-24.3
|
%
|
|
|
42.1
|
%
|
|
|
41.9
|
%
|
Total investments and other earning assets
|
|
|
19
|
|
|
|
-16.3
|
|
|
|
-21.0
|
|
|
|
34.3
|
|
|
|
24.6
|
|
Total interest sensitive income
|
|
|
|
|
|
|
-16.9
|
|
|
|
-23.0
|
|
|
|
39.6
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
67
|
|
|
|
-11.0
|
|
|
|
-15.7
|
|
|
|
37.2
|
|
|
|
37.1
|
|
Total borrowings
|
|
|
11
|
|
|
|
-13.8
|
|
|
|
-26.6
|
|
|
|
58.7
|
|
|
|
61.6
|
|
Total interest-sensitive expense
|
|
|
|
|
|
|
-11.5
|
|
|
|
-17.5
|
|
|
|
40.7
|
|
|
|
41.1
|
|
52
The primary simulations for EVE at risk assume immediate +/-100 and +/-200 basis points
parallel shifts in market interest rates beyond the interest rate change implied by the current
yield curve. The table below outlines the June 30, 2011, results compared with December 31, 2010.
All of the positions were within the board of directors policy limits.
Table 41 Economic Value of Equity at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Value of Equity at Risk (%)
|
|
Basis point change scenario
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board policy limits
|
|
|
-12.0
|
%
|
|
|
-5.0
|
%
|
|
|
-5.0
|
%
|
|
|
-12.0
|
%
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
-1.4
|
|
|
|
1.4
|
|
|
|
-2.9
|
|
|
|
-6.8
|
|
December 31, 2010
|
|
|
-0.5
|
|
|
|
1.3
|
|
|
|
-4.0
|
|
|
|
-8.9
|
|
The EVE at risk reported as of June 30, 2011, for the +200 basis points scenario shows a
change to a lower long-term liability sensitive position compared with December 31, 2010. The
primary factor contributing to this change is the 2011 first quarter termination of $4.6 billion of
interest rate swaps maturing through June 2012.
The following table shows the economic value sensitivity of select portfolios to changes in
market interest rates. The change in economic value for each portfolio is measured as the percent
change from the base economic value for that portfolio. For the +200 basis points scenario, total
net tangible assets decreased in value 3.4% to changes in market interest rates, while total net
tangible liabilities increased in value 2.8% to changes in market interest rates.
Table 42 Economic Value Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Total Net
|
|
|
Percent Change in Economic Value for a Given
|
|
|
|
Tangible
|
|
|
Change in Interest Rates
|
|
|
|
Assets (1)
|
|
|
Over / (Under) Base Case Parallel Shocks
|
|
Basis point change scenario
|
|
|
|
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
74
|
%
|
|
|
1.4
|
%
|
|
|
1.1
|
%
|
|
|
-1.4
|
%
|
|
|
-2.7
|
%
|
Total investments and other earning assets
|
|
|
17
|
|
|
|
3.8
|
|
|
|
2.7
|
|
|
|
-3.3
|
|
|
|
-6.6
|
|
Total net tangible assets (2)
|
|
|
|
|
|
|
1.8
|
|
|
|
1.4
|
|
|
|
-1.6
|
|
|
|
-3.4
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
78
|
|
|
|
-2.6
|
|
|
|
-1.4
|
|
|
|
1.5
|
|
|
|
3.0
|
|
Total borrowings
|
|
|
10
|
|
|
|
-1.4
|
|
|
|
-0.8
|
|
|
|
0.7
|
|
|
|
1.4
|
|
Total net tangible liabilities (3)
|
|
|
|
|
|
|
-2.4
|
|
|
|
-1.4
|
|
|
|
1.4
|
|
|
|
2.8
|
|
|
|
|
(1)
|
|
At June 30, 2011.
|
|
(2)
|
|
Tangible assets excluding ALLL.
|
|
(3)
|
|
Tangible liabilities excluding AULC.
|
MSRs
(This section should be read in conjunction with Note 6 of Notes to Unaudited Condensed
Consolidated Financial Statements.)
At June 30, 2011, we had a total of $189.7 million of capitalized MSRs representing the right
to service $16.3 billion in mortgage loans. Of this $189.7 million, $105.0 million was recorded
using the fair value method, and $84.7 million was recorded using the amortization method. When we
actively engage in hedging, the MSR asset is recorded using the fair value method.
MSR fair values are very sensitive to movements in interest rates as expected future net
servicing income depends on the projected outstanding principal balances of the underlying loans,
which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest
rates decline and decrease when mortgage interest rates rise. We have employed strategies to
reduce the risk of MSR fair value changes or impairment. In addition, we engage a third party to
provide valuation tools and assistance with our strategies with the objective to decrease the
volatility from MSR fair value changes. However, volatile changes in interest rates can diminish
the effectiveness of these hedges. We typically report MSR fair value adjustments net of
hedge-related trading activity in the mortgage banking income category of noninterest income.
Changes in fair value between reporting dates are recorded as an increase or a decrease in mortgage
banking income.
53
MSRs recorded using the amortization method generally relate to loans originated with
historically low interest rates, resulting in a lower probability of prepayments and, ultimately,
impairment. MSR assets are included in other assets and presented in Table 12 and Table 16.
Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of
financial instruments that are carried at fair value and are subject to fair value accounting. We
have price risk from trading securities, securities owned by our broker-dealer subsidiaries,
foreign exchange positions, equity investments, investments in securities backed by mortgage loans,
and marketable equity securities held by our insurance subsidiaries. We have established loss
limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained,
and on the amount of marketable equity securities that can be held by the insurance subsidiaries.
Liquidity Risk
Liquidity risk is the risk of loss due to the possibility that funds may not be available to
satisfy current or future commitments resulting from external macro market issues, investor and
customer perception of financial strength, and events unrelated to us, such as war, terrorism, or
financial institution market specific issues. We manage liquidity risk at both the Bank and the
parent company.
Bank Liquidity and Sources of Liquidity
Our primary sources of funding for the Bank are retail and commercial core deposits. At June
30, 2011, these core deposits funded 74% of total assets. At June 30, 2011, total core deposits
represented 95% of total deposits, an increase from 93% at December 31, 2010.
Core deposits are comprised of interest-bearing and noninterest-bearing demand deposits, money
market deposits, savings and other domestic deposits, consumer certificates of deposit both over
and under $250,000, and nonconsumer certificates of deposit less than $250,000. Noncore deposits
consist of brokered money market deposits and certificates of deposit, foreign time deposits, and
other domestic deposits of $250,000 or more comprised primarily of public fund certificates of
deposit more than $250,000.
Core deposits may increase our need for liquidity as certificates of deposit mature or are
withdrawn before maturity and as nonmaturity deposits, such as checking and savings account
balances, are withdrawn.
Demand deposit overdrafts that have been reclassified as loan balances were $15.9 million,
$13.1 million, and $18.2 million at June 30, 2011, December 31, 2010, and June 30, 2010,
respectively.
Other domestic time deposits of $250,000 or more and brokered deposits and negotiable CDs
totaled $1.9 billion, $2.2 billion, and $2.1 billion at June 30, 2011, December 31, 2010, and June
30, 2010, respectively.
54
The following tables reflect deposit composition and short-term borrowings detail for each of
the past five quarters:
Table 43 Deposit Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
(dollar amounts in millions)
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
By Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
noninterest-bearing
|
|
$
|
8,210
|
|
|
|
20
|
%
|
|
$
|
7,597
|
|
|
|
18
|
%
|
|
$
|
7,217
|
|
|
|
17
|
%
|
|
$
|
6,926
|
|
|
|
17
|
%
|
|
$
|
6,463
|
|
|
|
16
|
%
|
Demand deposits interest-bearing
|
|
|
5,642
|
|
|
|
14
|
|
|
|
5,532
|
|
|
|
13
|
|
|
|
5,469
|
|
|
|
13
|
|
|
|
5,347
|
|
|
|
13
|
|
|
|
5,850
|
|
|
|
15
|
|
Money market deposits
|
|
|
12,643
|
|
|
|
31
|
|
|
|
13,105
|
|
|
|
32
|
|
|
|
13,410
|
|
|
|
32
|
|
|
|
12,679
|
|
|
|
31
|
|
|
|
11,437
|
|
|
|
29
|
|
Savings and other domestic
deposits
|
|
|
4,752
|
|
|
|
11
|
|
|
|
4,762
|
|
|
|
12
|
|
|
|
4,643
|
|
|
|
11
|
|
|
|
4,613
|
|
|
|
11
|
|
|
|
4,652
|
|
|
|
12
|
|
Core certificates of deposit
|
|
|
7,936
|
|
|
|
19
|
|
|
|
8,208
|
|
|
|
20
|
|
|
|
8,525
|
|
|
|
20
|
|
|
|
8,765
|
|
|
|
21
|
|
|
|
8,974
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
39,183
|
|
|
|
95
|
|
|
|
39,204
|
|
|
|
95
|
|
|
|
39,264
|
|
|
|
93
|
|
|
|
38,330
|
|
|
|
93
|
|
|
|
37,376
|
|
|
|
95
|
|
Other domestic deposits of $250,000
or more
|
|
|
436
|
|
|
|
1
|
|
|
|
531
|
|
|
|
1
|
|
|
|
675
|
|
|
|
2
|
|
|
|
730
|
|
|
|
2
|
|
|
|
678
|
|
|
|
2
|
|
Brokered deposits and negotiable CDs
|
|
|
1,486
|
|
|
|
4
|
|
|
|
1,253
|
|
|
|
3
|
|
|
|
1,532
|
|
|
|
4
|
|
|
|
1,576
|
|
|
|
4
|
|
|
|
1,373
|
|
|
|
3
|
|
Deposits in foreign offices
|
|
|
297
|
|
|
|
|
|
|
|
378
|
|
|
|
1
|
|
|
|
383
|
|
|
|
1
|
|
|
|
436
|
|
|
|
1
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
41,402
|
|
|
|
100
|
%
|
|
$
|
41,366
|
|
|
|
100
|
%
|
|
$
|
41,854
|
|
|
|
100
|
%
|
|
$
|
41,072
|
|
|
|
100
|
%
|
|
$
|
39,849
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
13,541
|
|
|
|
35
|
%
|
|
$
|
12,785
|
|
|
|
33
|
%
|
|
$
|
12,476
|
|
|
|
32
|
%
|
|
$
|
12,262
|
|
|
|
32
|
%
|
|
$
|
11,515
|
|
|
|
31
|
%
|
Consumer
|
|
|
25,642
|
|
|
|
65
|
|
|
|
26,419
|
|
|
|
67
|
|
|
|
26,788
|
|
|
|
68
|
|
|
|
26,068
|
|
|
|
68
|
|
|
|
25,861
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
$
|
39,183
|
|
|
|
100
|
%
|
|
$
|
39,204
|
|
|
|
100
|
%
|
|
$
|
39,264
|
|
|
|
100
|
%
|
|
$
|
38,330
|
|
|
|
100
|
%
|
|
$
|
37,376
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 44 Federal Funds Purchased and Repurchase Agreements